Interest and the Additional Indemnity

Overview

An award of principal may leave a creditor uncompensated for the period during which payment was withheld. Quebec law addresses that delay through interest and, where claimed and justified, an additional indemnity. The calculation requires more than multiplying the damages by a percentage: the nature of the obligation, the date of default, the applicable rate, the timing of each loss and any payments must be established.

The legal interest rate (taux d'intérêt légal) and the additional indemnity (indemnité additionnelle) have different statutory sources and procedural requirements. Judicial discretion concerning the starting date or the additional indemnity must also be separated from capitalization of interest. Each mechanism compensates a particular consequence of delay; combining them must not produce duplicate recovery.

Learning Objectives

• Distinguish interest under arts. 1617 and 1618 CCQ from the additional indemnity under art. 1619 CCQ.
• Establish default and the applicable starting date for each amount and debtor.
• Calculate compensation over changing rates and apply the limits on judicial discretion and capitalization.

Interest and the Additional Indemnity

The Applicable Obligation and Rate

Moratory damages (dommages-intérêts moratoires) compensate delay in performance. Art. 1617 CCQ concerns delay in performing an obligation to pay money. Interest runs at the agreed rate or, absent an agreement, the legal rate, from default; the creditor need not prove a distinct injury caused by the delay. An unpaid contractual payment falls within this framework. A stipulation allowing additional damages under the final paragraph of art. 1617 requires justification of those damages and must be distinguished from the statutory indemnity under art. 1619.

Art. 1618 CCQ concerns damages other than those arising from delay in paying a sum of money. A monetary award for defective performance or physical damage does not transform the original obligation into a money-payment obligation for this purpose. Interest again uses the agreed rate or the legal rate, but begins at default or a later date the court considers appropriate in light of the injury and circumstances. That later-date discretion is part of art. 1618; it is not a general power to rewrite the starting point fixed by art. 1617.

The 5% annual legal rate comes from s. 3 of the federal Interest Act, not from a percentage written into art. 1618 CCQ. It applies where interest is payable by agreement or law and no rate is fixed. A contractual interest rate (taux d'intérêt conventionnel) must be proved and must be legally enforceable. Under s. 4 of the Interest Act, a written contract stating a rate for a period shorter than a year must expressly state the equivalent annual rate to permit recovery above 5%, subject to the provision's exception for mortgages on real property or hypothecs on immovables. Louha c. Investissements Eres ltée, 2016 QCCA 1041, applies that requirement. Interest Act, ss. 3–4.

Once its legal conditions are satisfied, legal interest is not an optional gratuity. In Droit de la famille - 2261, 2022 QCCA 92, the Court of Appeal restored legal interest that had been removed because it was not requested, while leaving the unrequested additional indemnity disallowed. The automatic character of legal interest does not eliminate the need to prove facts establishing when default occurred or to identify the proper principal.

Purpose and Scope of the Additional Indemnity

Art. 1619 CCQ permits an indemnity calculated by the excess of the rate applicable to State debts under s. 28 of the Tax Administration Act over the agreed interest rate or, failing one, the legal rate. It supplements compensation for deprivation of money where that benchmark exceeds ordinary interest. It is not a damages award measured directly by the consumer price index or the claimant's personal investment portfolio.

The mechanism extends beyond a narrowly labelled damages action. Entreprises LT ltée c. Gestion Michel Lagacé inc., 2023 QCCA 1368, is cited in the jurisprudence concerning its application to deprivation of a sum due, in the context of a share repurchase claim. The underlying entitlement to payment must nevertheless be established. The additional indemnity does not cure a failure to prove the principal claim or provide a second recovery for a financing loss already compensated elsewhere.

The claimant must expressly request the additional indemnity in the conclusions sought. This requirement follows the prohibition against deciding beyond the relief claimed, reflected in art. 10 CPC. Statutory rates are judicially known under art. 2807 CCQ, but the agreement establishing a contractual rate and the facts fixing default remain matters of evidence. Plead the starting date and identify its foundation instead of merely requesting an unspecified percentage at the end of the proceedings.

Establishing the Starting Point

Contractual Default and Default by Law

Default (demeure) is the legal condition that makes delayed performance operative for these purposes. Art. 1594 CCQ recognizes default through the contract, an extrajudicial demand, judicial proceedings or operation of law. A calendar entry showing when an invoice was due is not always enough. Contractual default requires wording making the mere expiry of the time allowed for performance constitute default; the effect must be distinguished from a clause simply setting a due date or mentioning interest from invoicing.

Art. 1597 CCQ identifies default by operation of law. Its circumstances include performance useful only within an expired time, failure to perform immediately in an emergency, breach of an obligation not to do something, and performance rendered impossible through the debtor's fault. They also include a clear intention not to perform and repeated refusal or neglect of a successive obligation. The creditor relying on one of these grounds must allege and prove the relevant facts, as art. 1598 CCQ requires.

Accordingly, interest does not begin at the damaging event merely because an extra-contractual claim concerns complete destruction of property. The asserted legal ground of default must be established, and art. 1618's power to select a later date remains relevant. Nor does an unresolved dispute over quantum always postpone interest until judgment. The analysis concerns the obligation, information communicated, timing of the injury and applicable default rule.

Written Demand and Judicial Proceedings

An extrajudicial demand (demande extrajudiciaire) under art. 1595 CCQ must be written and allow sufficient time for performance in the circumstances. The period granted matters to the calculation. Where no earlier contractual or statutory default exists, a creditor who allows payment until a specified date cannot calculate interest as though no opportunity to perform had been granted.

The communication must genuinely require performance and sufficiently identify the claim. In Pomerleau inc. c. Administration portuaire de Sept-Îles, 2020 QCCS 1689, a detailed compensation request was treated as an invitation to negotiate rather than a demand requiring payment within a determined period. In Ly c. Construction Sainte Gabrielle inc., 2018 QCCA 1438, the absence of a monetary damages claim in the earlier notice led to interest beginning when the debtor was informed of that claim through an amendment to the proceedings.

The file should therefore contain the demand, the amount and nature of the obligation it identifies, evidence of transmission or receipt, and the period afforded for compliance. A general reservation of rights may fail to establish the starting point claimed for a later head of damages. A letter can have evidentiary significance without meeting all the requirements of an effective demand for the particular sum.

Art. 1596 CCQ addresses judicial demand where the debtor was not previously put in default. Service of the proceedings ordinarily supplies the relevant reference point in that situation. The applicable statutory protection for a sufficient opportunity to perform must still be considered. Filing, service, the date a new claim was communicated and an earlier notice should be recorded separately; they are not interchangeable dates.

Under art. 1617, Québec (Ville de) c. Constructions BSL inc., 2022 QCCA 1682, illustrates that the court cannot freely replace default with another starting date. Where the claimant limits the requested interest to a later date, however, the court must respect the relief sought. Careful conclusions avoid unnecessarily relinquishing an earlier established entitlement.

Multiple Debtors and Distinct Losses

Art. 1599 CCQ makes an extrajudicial demand to one solidary debtor effective against the others. Solidarity (solidarité) must be legally established before applying that rule. Liability in solidum (responsabilité in solidum) does not carry all the same effects. In Alexis Nihon (Québec) inc. c. Commerce & Industry Insurance Co. of Canada, [2002] R.R.A. 777 (C.A.), the different dates on which defendants were brought into the proceedings produced different periods of interest and additional indemnity.

The starting point may also differ among amounts claimed from one defendant. In Montréal (Ville de) c. 9150-2732 Québec inc., 2023 QCCA 567, the Court of Appeal adjusted the calculation to when damages would have materialized, corresponding to payment had the disappointed bidder obtained the contract. Future instalments cannot automatically bear interest from a date when they were not yet payable. A calculation grouped by head of loss can therefore be more accurate than a single date applied to the entire award.

Judicial Discretion and Different Heads of Award

Refusal or Reduction of the Additional Indemnity

Awarding the additional indemnity from default is the ordinary approach when it has been requested. Art. 1619 nevertheless leaves judicial discretion. A refusal or limitation must be explained in the circumstances; Laviolette c. Dugas, 2022 QCCA 643, is among the appellate authorities emphasizing the need for reasons. This is not an unrestricted power to change the legal interest rate.

Unreasonable delay attributable to the claimant may justify limiting the indemnity. The party asking for reduction generally must establish the relevant inactivity and its consequences. The court considers the complexity of the case, necessary expert work and the conduct of both sides. Several years of proceedings, incidental applications or amendments do not themselves establish abusive delay. Alexis Nihon illustrates that an exceptionally complex case involving numerous parties and expert reports can justify a lengthy proceeding without depriving the claimant of compensation for the defendant's continued possession of the funds.

A grossly exaggerated demand may also justify refusal where it made realistic performance or settlement illusory. The difference between the amount claimed and the amount awarded is not conclusive by itself: the basis of the original estimate and the claimant's conduct matter. Amendments likewise require context. In 9293-8018 Québec inc. c. Stern, 2023 QCCA 804, substantial changes to the amount claimed did not prevent computation from default.

The adequacy of existing compensation also matters. In Ahsan c. Second Cup, J.E. 2003-736 (C.A.), the contractual rate of 18%, consistently higher than the State-debt rate, justified refusing the additional indemnity. The absence of misconduct by a claimant does not create a right to a positive supplement when there is no positive statutory differential.

For interest under art. 1618, selecting a later starting date must be distinguished from interrupting and restarting interest at will. The appellate jurisprudence discussed in Laviolette and Côté c. Laforest, 2016 QCCA 812, limits that latter approach. Any requested adjustment should identify whether it concerns the legal interest starting date, the additional indemnity, or a particular amount; these are separate legal questions.

Future Losses, Punitive Damages and Costs

Discounted future loss (perte future actualisée) requires coordination between valuation and interest. A present-value calculation may already reflect financial assumptions as of a selected date. Applying an earlier starting point indiscriminately to the resulting capital can overcompensate the claimant. Godin c. Quintal, 2002 CanLII 41153 (QC CA), supports aligning the valuation date and the starting date. Similar care is necessary where the amount for non-pecuniary bodily injury has been indexed to reflect inflation. The solution must account for how the award was actually assessed.

Punitive damages (dommages-intérêts punitifs) ordinarily bear interest from judgment, when their preventive amount is determined, rather than from an earlier default. Nashen c. Station Mont-Tremblant, 2022 QCCA 415, supports that approach. Some trial decisions have selected an earlier date; the existence of those departures should not be converted into a general entitlement to prejudgment interest on punitive awards.

Legal costs (frais de justice) have their own treatment. Art. 339 CPC includes expert fees within legal costs, subject to the applicable judicial assessment, and art. 343 CPC makes legal costs bear legal interest from judgment. They should not be added indiscriminately to the compensatory principal from the original demand date. Separating principal damages, punitive damages and costs allows the judgment and subsequent calculation to reflect their different rules.

Calculating the Indemnity and Capitalization

Rates, Periods and Principal

The State-debt rate changes over time. For each applicable period, the additional percentage is the positive excess of that rate over the agreed rate or the legal rate. When the reference rate is at or below the applicable interest rate, the additional percentage is zero; the mechanism does not reduce the otherwise applicable interest. A contractual rate of 6% and reference rate of 8% would therefore produce a 2-point supplement, if awarded, rather than an automatic 3-point supplement based on 5%.

The official Revenu Québec table gives 8% for January–March 2026 and 7% for April–June and July–September 2026. These are annual rates applying during those quarters, not quarterly returns. Later or earlier periods require their own published rates. Art. 1619 borrows the rate; the daily capitalization used for tax debts must not be imported into an ordinary civil award without an independent basis. Revenu Québec, rates on debts.

A simple-interest schedule identifies principal, days, annual rate and the applicable day-count convention for each period. Split the schedule when a rate changes, a principal amount becomes due, or a payment affects the outstanding balance. Keep interest and indemnity separate until the final addition, and state the rounding method. Genuine payments and valid tender and deposit can affect the amount continuing to bear interest; an unaccepted proposal is not automatically equivalent to payment.

Capitalization Under Art. 1620 CCQ

Capitalization of interest (anatocisme) means that accrued interest itself generates interest. Art. 1620 CCQ permits it where an agreement or legislation provides for it, or where further interest is expressly demanded in an action. The provision contains no requirement that interest have remained unpaid for a full year and creates no general entitlement to annual compounding. A demand letter alone is not the express demand in an action contemplated by this route. Art. 1620 CCQ.

Hébert c. Centre hospitalier affilié universitaire de Québec - Hôpital de l'Enfant-Jésus, 2011 QCCA 1521, treats capitalization as exceptional. The judicial-demand route generally concerns a single capitalization of interest already accrued when the proceeding claiming it is instituted. Express conclusions require supporting submissions and an appropriate legal basis; they do not authorize a fresh capitalization on each future anniversary. A contractual or statutory route must instead be analysed according to its own terms.

The debtor must also be the proper one. Commission des normes, de l'équité, de la santé et de la sécurité du travail c. Ortslan, 2019 QCCA 1177, rejects using a first action against a different debtor to capitalize interest accumulated on another debtor's obligation. The proposed capitalized amount, its accrual period and the obligation on which it arose must be identified. Neither entering judgment nor requesting the additional indemnity automatically turns all accrued accessories into new principal.

Worked Example: Default and Two Quarterly Rates

Factual Scenario

This example is hypothetical.

A company owes $150,000 in matured equipment-rental arrears. Assume there is no agreed interest rate and no earlier contractual or statutory default. A written demand received on 16 December 2025 gives the debtor until 31 December to pay, providing sufficient time in the circumstances. Payment is not made. Proceedings expressly claim the additional indemnity, and judgment on 1 July 2026 accepts 1 January 2026 as the starting date.

For this example, use actual days over 365, count 1 January through 30 June, assume no interim payment, and round only the final results to cents:

Practice Checklist

• Classify the obligation under art. 1617 or art. 1618 and prove any enforceable contractual rate.
• Establish default, receipt or service, the time allowed to perform and the starting date requested.
• Claim the additional indemnity expressly and address any proposed discretionary limitation.
• Separate debtors and heads of award when their obligations or starting dates differ.
• Use the published State-debt rate for each period and calculate only the positive differential.
• Track payments, principal changes, day counts and rounding without automatic compounding.
• Identify the precise agreement, statute or judicial demand supporting any capitalization.
• Check the judgment's treatment of interest, indemnity and costs; consider rectification under art. 338 CPC or appeal if an omission requires correction.