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Joint Session of the Criminal and Civil Sections
Section 347 of the Criminal Code of Canada: Business Law Problems Remain (Joint Session)
Presenter: Jennifer Babe, Miller Thomson LLP
The paper prepared by Ms. Babe provided an overview of the history of the 'criminal interest rate' provision in the Criminal Code (section 347) and summarized the issues raised in the paper prepared by Professor Mary Anne Waldron for the Conference in 2002 on the same issue.
In her presentation, Ms. Babe described the nature of legitimate business transactions involving interest payments that are seriously affected as a result of unenforceable contractual clauses offending section 347 of the Criminal Code. Examples of such transactions include bridge loans, start-up businesses, equity kickers and mezzanine financers. It was noted that while there are very few reported criminal cases considering section 347 of the Criminal Code there have been many cases where the section is relied on in commercial litigation – usually by a party to a transaction seeking an order that a contract term is unenforceable by reason of illegality due to section 347. This, the presenter noted, was not the activity that section 347 of the Criminal Code intended to address.
A report was then given on events since the presentation of the Waldron paper. The presenter reported that following the presentation of the paper to the Conference in 2003, the ULCC submitted the Waldron Report recommendations to the then federal Minister of Justice for his consideration. The presenter then referred to a 2005 recommendation made by the Senate Banking Committee during its study of Bill S-19, An Act to amend the Criminal Code (criminal interest rate), 1st Sess., 38th Parl., 2005 (the Bill later died on the Order Paper). The Committee had recommended exempting from s. 347 of the Criminal Code loans where the principal amount was in excess of $100 000. The presenter also mentioned the tabling of Bill C-26, An Act to amend the Criminal Code (criminal interest rate), which focuses on payday lenders and others lending to financially vulnerable Canadians. However, it was noted that Bill C-26, does not address the problems with respect to large business transactions outlined in the Waldron Report and that no further bills addressing the issue relating to larger business transactions were presented by the Government since the Waldron Report was submitted to the then Minister of Justice in 2004.
The presenter noted that most provinces are now moving forward with legislation to regulate payday lenders and this type of legislation is a valuable piece of consumer protection. However, such legislation does not address the issues relating to interests for larger business transactions.
The presenter concluded that section 347 of the Criminal Code continues to pose serious difficulties for larger business transactions and proposed that the Criminal Section of the ULCC examine this provision in light of the problems described above taking into consideration the criminal conduct it was intended to address.
Following the presentation, delegates proposed ways to study section 347 of the Criminal Code in light of issues facing the business community, as highlighted in the presentation.
During the discussion, it was submitted that this provision may not belong in the Criminal Code since consumer protection laws already exist. In response, some delegates noted that other Criminal Code offences, such as fraud and theft, also have a consumer protection component but that the true purpose of those provisions is to distinguish between what is right and wrong. It was noted that two distinct scenarios emerge from the paper: The first refers to sophisticated business transactions while the second encompasses situations such as in the case of Garland v Consumers’ Gas  3 S.C.R. 112 dealing with consumers paying high interest rates on late payments of consumer gas bills. For the latter cases, it was argued that a set criminal interest rate may be the only way to target corporate behaviour against individuals by stating that these corporations are acting criminal by charging such high interest rates. Therefore, it was suggested that a proposal to amend s. 347 should be restricted to addressing the problem dealing with sophisticated business transactions without affecting other parts of the section because there is a need to maintain the current 60 % baseline on which to have all types of commercial and consumer behaviour rest.
One delegate expressed the view that in searching ways to address the sophisticated business transactions aspect, care should be given not to ignore implications in other areas and noted that there may be sound policy reasons for maintaining section 347 in the Criminal Code.
Following discussion, the Chair of the Criminal Section noted that the Criminal Section would discuss and vote on a proposed resolution to consider creating a working group to study the issues described in the paper. The following resolution and corresponding vote were reported back during the closing plenary.
That the Criminal Section of the Uniform Law Conference of Canada consider examining the issue of the usefulnessfor criminal law purposes of section 347 of the Criminal Code, and the range of options for possible reform of this offence.
Carried as amended: 13-0-7