Interest and Additional Indemnity

Overview

Several years may pass between the occurrence of a wrongful act and the rendering of the judgment that concludes the proceedings. During that interval, the victim is deprived of the monetary equivalent of the harm suffered. Quebec civil law addresses this prejudice through moratory damages (dommages-intérêts moratoires), composed of two distinct components: legal interest under art. 1618 CCQ and the additional indemnity (indemnité additionnelle) under art. 1619 CCQ. Together, these mechanisms compensate the creditor for delay in receiving reparation. They apply in both contractual and extra-contractual matters and raise recurring questions about rates, judicial discretion, and the determination of the starting point for calculation.

Learning Objectives

Distinguish legal interest from the additional indemnity and explain why the legislature created two separate instruments.
Apply the fixed legal interest rate under art. 1618 CCQ and identify the limits on judicial power to modify it.
Describe the nature, conditions, and discretionary character of the additional indemnity under art. 1619 CCQ.
Determine the starting point of calculation by applying the concept of default (demeure) and its four modes under art. 1594 CCQ.
Identify the requirements for a valid extrajudicial demand to serve as the starting point.
Recognize the particular rules governing punitive damages, staggered lost profits, non-pecuniary losses, and extrajudicial fees.

Key Concepts and Definitions

Moratory damages (dommages-intérêts moratoires): Compensation for loss caused by delay in paying a debt or satisfying a judgment. In matters of unliquidated damages, interest and the additional indemnity accrued before judgment constitute an indemnity for the delay.
Legal interest (intérêt légal): The statutory rate applied to a capital sum, fixed at 5% by art. 1618 CCQ.
Additional indemnity (indemnité additionnelle): A supplementary amount authorized by art. 1619 CCQ to bridge the gap between the legal rate and prevailing market rates, preventing unjust enrichment of the debtor.
Default (demeure): The condition of being in delay to perform an obligation. The debtor's default triggers the running of moratory damages.
Extrajudicial demand (mise en demeure extrajudiciaire): A formal notice by the creditor to the debtor, constituting one mode of putting the debtor in default.
Unliquidated damages (dommages-intérêts non liquidés): Damages whose amount has not been fixed in advance and requires assessment by the court.

Moratory Damages in Quebec Civil Law

When a court awards damages for bodily injury, property loss, or moral harm, the judgment typically addresses compensation for the underlying harm itself (compensatory damages). A separate question arises concerning the prejudice caused by the passage of time between the wrongful act and satisfaction of the judgment. The victim who waits years for compensation suffers actual economic loss: inflation erodes the value of the award, and the victim loses the opportunity to invest or use the funds.

Arts. 1617 to 1619 CCQ form the legislative framework for moratory damages. Art. 1617 CCQ establishes the general principle that damages for delay in the performance of an obligation to pay a sum of money consist of interest at the agreed or legal rate. Art. 1618 CCQ fixes the legal rate, and art. 1619 CCQ authorizes the additional indemnity. These provisions apply uniformly in contractual and extra-contractual matters.

The economic logic is straightforward. Between the moment the debtor should have paid and the moment of actual payment, the debtor retains funds that belong, in equity, to the creditor. The debtor may invest those funds at market rates, which often exceed the legal rate. Without a corrective mechanism, the debtor profits from delay while the creditor bears its cost. The additional indemnity addresses this imbalance.

Legal Interest Under Art. 1618 CCQ

The Fixed Rate and Its Consequences

The legal interest rate (taux d'intérêt légal) applicable to a capital sum is 5%, as established by art. 1618 CCQ. This rate applies automatically to any obligation to pay a sum of money once the debtor is in default, unless the parties have agreed to a different contractual rate.

The 5% rate has remained unchanged since its adoption in the CCQ. Because it is set by statute rather than by regulation, any modification requires legislative amendment. This rigidity means that the legal rate does not track fluctuations in financial markets. In periods when prevailing commercial lending rates significantly exceed 5%, the fixed statutory rate provides only partial compensation for the creditor's loss. Conversely, in periods of very low interest rates, 5% may exceed what the creditor could have earned through investment.

Limits on Judicial Discretion

Courts have no authority to set a distinct interest rate, whether higher or lower than 5%, in the absence of an agreement between the parties. The judicial discretion relating to legal interest is strictly limited to determining the starting point (point de départ) from which interest begins to run. Courts may not refuse interest to the plaintiff, because the entitlement has an automatic character once default is established.

This strict constraint means that a judge may not fix an interruption date for the calculation, nor limit the calculation period to a specific duration. The rate runs continuously from the starting point until the date of payment or judgment, subject only to the determination of when default occurred.

Mini-hypo: A tenant suffers water damage to personal property worth $20,000. The landlord contests liability. The matter proceeds to trial three years later. Regardless of the trial's duration, the court must award interest at 5% from the date of default, without power to reduce the rate to account for the landlord's own financial difficulties.

The Additional Indemnity Under Art. 1619 CCQ

Nature and Constitutional Qualification

Art. 1619 CCQ authorizes the court to award an additional indemnity (indemnité additionnelle) in both contractual and extra-contractual matters. The legislature deliberately chose the term "indemnity" rather than "interest" to address constitutional concerns. Under the Canadian constitutional division of powers, the regulation of interest engages federal jurisdiction. By qualifying the supplementary amount as an indemnity rather than as interest, the provincial legislature positioned the mechanism within its authority over property and civil rights (s. 92(13), Constitution Act, 1867).

This constitutional qualification carries a practical consequence: because the additional indemnity is an "indemnity" and not "interest," the court possesses discretionary power to grant or refuse it. This distinguishes it from the legal interest under art. 1618 CCQ, which runs automatically once default is established.

Judicial Discretion to Grant or Refuse

Under art. 1619 CCQ, the additional indemnity must be requested by the claimant; the court will not award it on its own motion. In practice, courts grant the additional indemnity on a quasi-automatic basis when it has been properly claimed. The threshold for obtaining it is low: a standard request in the conclusions of the proceeding normally suffices.

The amount of the additional indemnity is calculated by reference to the difference between the legal rate (5%) and a rate reflecting actual market conditions, typically pegged to published reference rates. The purpose is to ensure that the total of legal interest plus the additional indemnity approximates the economic loss the creditor actually suffered from the delay.

Grounds for Refusal or Reduction

Although the additional indemnity is granted quasi-automatically, courts retain discretion to refuse or reduce it in defined circumstances:

Dilatory or reprehensible conduct by the plaintiff: If the plaintiff's own behaviour in the conduct of the proceedings caused or prolonged delay, the court may refuse or reduce the additional indemnity. A plaintiff who fails to prosecute the case diligently or who engages in procedural abuse may lose entitlement.
Grossly exaggerated claims: Where the amount claimed was manifestly excessive compared to the damages ultimately awarded, the court may reduce or deny the additional indemnity on the portion that was exaggerated.
Contractual interest exceeding the threshold: When the parties have agreed to an interest rate that already exceeds the minimum rate serving as the basis for calculating the additional indemnity, the purpose of the indemnity is already served by the contractual rate. In such cases, courts will refuse the additional indemnity.
Enjoyment of property: Where the successful party enjoyed the use of a property for several years during the litigation, courts have refused the additional indemnity on the reasoning that the party was not truly deprived of economic benefit during the delay.

Mini-hypo: A contractor claims $500,000 for construction defects. The court awards $95,000. Because the original claim was grossly exaggerated, the judge reduces the additional indemnity, reasoning that the defendant had legitimate grounds to contest the inflated amount and should not bear the full cost of delay attributable to the plaintiff's overreach.

Starting Point of Calculation: Default and Demeure

Historical Background Under the CCLC

Under the former Civil Code of Lower Canada (CCLC), art. 1056c) imposed a rigid rule: the starting point for calculating moratory damages was the date of service of the judicial demand (date de la demande en justice). The categorical wording of the article left courts with little flexibility, and jurisprudence was divided on whether this date should apply in all cases, even when doing so produced inequitable results. A victim who sent a detailed extrajudicial demand months before filing suit received no credit for that earlier date under the strict reading of the old provision.

The CCQ Reform: From Service of Process to Demeure

The Civil Code of Quebec addressed this controversy by replacing the reference to "judicial demand" with the broader concept of default (demeure) in arts. 1617 and following. This reform expanded the range of events that can serve as the starting point for calculating interest and the additional indemnity.

The jurisprudence has evolved in several stages. Some early decisions under the CCQ continued to apply the date of service of the judicial demand (judicial default) as the starting point. Commentators cautioned that this approach risked being a mechanical application of the old rule rather than a genuine engagement with the reformed framework.

Four Modes of Default Under Art. 1594 CCQ

A debtor may be put in default (demeure) in four ways under art. 1594 CCQ:

By operation of the contract (art. 1594, al. 1 CCQ): The contract itself specifies that default occurs at a given time or upon a given event, without the need for any notice.
By operation of law (art. 1594, al. 2 and art. 1597 CCQ): Certain statutory provisions place the debtor in default automatically upon the occurrence of specified conditions.
By extrajudicial demand (art. 1594, al. 2 and art. 1595 CCQ): The creditor sends a formal notice (mise en demeure) to the debtor, requiring performance within a reasonable time.
By judicial demand (art. 1594, al. 2 and art. 1596 CCQ): The filing and service of the proceeding itself puts the debtor in default.

The date of service of the judicial demand applies suppletively under art. 1598 CCQ, only in the absence of proof that one of the other modes of default occurred earlier. This means that the date of service is the fallback, not the default rule.

Extrajudicial Demand as Starting Point

Several decisions now adopt a solution more favourable to the victim by fixing the starting point at the date the extrajudicial demand was sent, provided that this earlier date was specifically claimed in the proceeding. If the notice grants a delay for the debtor to comply, courts take that delay into account and begin the calculation at the expiry of the granted period rather than the date of sending.

As Professor Gardner has noted, moratory damages may run from the date of receipt of a letter of demand, provided the letter is sufficiently detailed and clearly indicates the sum with respect to which the debtor is henceforth in delay.

Requirements for a Valid Extrajudicial Demand

For an extrajudicial demand to serve as the starting point, it must meet minimum requirements of substance:

Emanate from the creditor or a duly authorized representative.
State the existence of the obligation giving rise to the claim.
Identify the defaults imputed to the debtor, specifying the conduct or omission at issue.
Indicate the performance required or the sum claimed, so the debtor can assess what is demanded.
State the sanction contemplated by the creditor in the event of continued non-performance.

A vague or imprecise letter of demand, or one that fails to specify a sum, will not serve as the starting point. In such cases, the starting point falls back to the date of service of the judicial demand.

Mini-hypo: After a car accident, the victim's lawyer sends the at-fault driver's insurer a detailed letter demanding $75,000 in compensation, identifying the specific losses, and specifying a 30-day deadline. When the insurer fails to respond, the victim files suit six months later. The court may fix the starting point of interest and the additional indemnity at the expiry of the 30-day period following the demand, not the later date of filing.

Special Cases and Particular Starting Points

Punitive Damages

The starting point of interest and the additional indemnity on an award of punitive damages (dommages punitifs) raises distinct considerations. Because punitive damages are not compensatory in nature and their quantum is fixed by the court at judgment, the starting point may differ from that applicable to the compensatory portion of the award. Courts have addressed this question on a case-by-case basis.

Staggered Lost Profits

Where lost profits (pertes de profits) are claimed over a period and have been staggered or spread across time, the starting point of moratory damages must be adapted. Each tranche of lost profit arises at a different moment, and the interest calculation should, in principle, reflect the date at which each portion of the loss materialized rather than applying a single starting point to the entire sum.

Non-Pecuniary and Prospective Losses

Non-pecuniary losses (pertes non pécuniaires) and prospective losses present similar difficulties. These forms of damage are, by their nature, difficult to quantify before judgment, which complicates the identification of a starting point. Courts have recognized this complexity and may apply the date of the judicial demand as the starting point for these components, even when an earlier date is used for other heads of damage.

Extrajudicial Fees

When the judgment includes a condemnation to pay extrajudicial fees (honoraires extrajudiciaires), the starting point of interest and the additional indemnity on those fees cannot logically precede the date of each respective fee account. A demand sent before the fees were incurred cannot put the debtor in default for an obligation that did not yet exist.

Illustrative Scenario

Consider the following scenario that draws together the principles covered in this article.

A pedestrian is struck by a vehicle and suffers serious bodily injuries on March 1, 2020. The pedestrian's lawyer sends a detailed letter of demand to the driver on June 15, 2020, claiming $150,000 in damages and granting 30 days to respond. The driver does not respond or pay. The pedestrian files a judicial demand on January 10, 2021. Judgment is rendered on September 15, 2023, awarding $120,000 in compensatory damages plus $15,000 in punitive damages.

For the compensatory damages, the court may fix the starting point of interest and the additional indemnity at July 15, 2020 (the expiry of the 30-day period in the demand letter), provided the demand met the substantive requirements. Interest at 5% runs from that date on the $120,000 capital. The additional indemnity, if claimed, supplements the 5% to reflect actual market conditions.

For the punitive damages, the starting point of moratory damages may differ; the court might apply the date of judgment or the date of service of the judicial demand, depending on the circumstances.

For any extrajudicial fees, interest runs only from the date each fee account was issued.

Practice Checklist

Verify that the demand for interest and the additional indemnity is expressly included in the conclusions of the proceeding.
Confirm the date of default: identify whether default arose by contract, by law, by extrajudicial demand, or by judicial demand.
If relying on an extrajudicial demand, ensure the letter specifies the sum claimed, identifies the defaults alleged, and grants a reasonable compliance period.
Check whether the plaintiff's own conduct (dilatory proceedings, grossly exaggerated claims) may provide grounds for reducing or refusing the additional indemnity.
Distinguish heads of damage that may carry different starting points (compensatory vs. punitive, staggered profits, non-pecuniary losses, extrajudicial fees).
Where a contractual interest rate exceeds the legal rate plus the additional indemnity, assess whether the additional indemnity remains available.
Calculate interest at the 5% legal rate continuously from the starting date to the date of judgment or payment.

Glossary

English	French
Additional indemnity	Indemnité additionnelle
Compensatory damages	Dommages-intérêts compensatoires
Default (putting in default)	Demeure (mise en demeure)
Extrajudicial demand	Mise en demeure extrajudiciaire
Extrajudicial fees	Honoraires extrajudiciaires
Judicial demand	Demande en justice
Legal interest	Intérêt légal
Legal interest rate	Taux d'intérêt légal
Moratory damages	Dommages-intérêts moratoires
Non-pecuniary losses	Pertes non pécuniaires
Punitive damages	Dommages punitifs
Unliquidated damages	Dommages-intérêts non liquidés

References

Art. 1594 CCQ (modes of default).
Art. 1595 CCQ (extrajudicial demand).
Art. 1596 CCQ (judicial demand as default).
Art. 1597 CCQ (default by operation of law).
Art. 1598 CCQ (suppletive application of judicial demand).
Art. 1617 CCQ (damages for delay in performance of monetary obligations).
Art. 1618 CCQ (legal interest rate at 5%).
Art. 1619 CCQ (additional indemnity).
Art. 1056c) CCLC (former rule under the Civil Code of Lower Canada).
D. Gardner, on the conditions for moratory damages to run from receipt of a letter of demand.

This article is provided for educational purposes and does not constitute legal advice. For specific situations, consult a qualified Quebec lawyer.

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