Notional Severance, Usurious Contracts, and Two Comments on the Supreme Court's Decision in the New Solutions Case
Canadian Business Law Journal, Vol. 42, 2005
2 Pages Posted: 4 Jul 2008
Date Written: January 1, 2005
Abstract
In Transport North American Express Inc. v. New Solutions Financial Corp. the Supreme Court of Canada held, in a case where the maximum interest rate provisions of the Criminal Code had been accidentally infringed, that the lender was entitled to recover the maximum legal rate of interest. Arbour J., for the majority of the court, rejected the view of the majority of the Ontario Court of Appeal, called the "blue pencil" test, that severance was only permissible as an "all or nothing" excision of a contractual clause that could be identified in distinct and separate words.
The conclusion reached by the Supreme Court in New Solutions has the merit of treating like cases alike, of avoiding chance windfalls to the borrower, and of increasing predictability.
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