MORTGAGEBROKER mbabc.ca summer 2014 | 37
classaction
Prepayment Clause
Sparks Class Action Suit
WITH ONE REASONABLY easy-to-
resolve condition, the Supreme Court of
British Columbia certified a class action
lawsuit against
CIBC Mortgages Inc.
regarding prepayment payment clauses.
In a class action lawsuit the court allows
a person to bring a lawsuit on behalf of a
defined class of people who face the same
issue. Amongst other benefits and reasons,
this allows the issue to both be raised for
people who individually would not find
it economical to go to court and for court
resources to be used more efficiently.
In this case the lone plaintiff sought to
bring the case forward as a class action lawsuit
on behalf of persons in B.C. who borrowed
money from
CIBC and who prepaid part or
all of the principal amounts secured by those
mortgages from 2005 onward. e amounts
charged to individuals ranged from less than
$1,000 to tens of thousands of dollars.
e court said the class was not defined
precisely enough but otherwise certified the
case as a class action on 30 June 2014. e
plaintiff's counsel is to come back with a more
precise definition for the class. In certifying
a case as a class action lawsuit a court is not
saying that the class will win, but only that
the claim is not plain and obvious to fail.
e primary issue in the lawsuit is whether
the prepayment clauses in
CIBC's standard
term agreements are void and unenforceable
because they give too much discretion to
CIBC in calculating the prepayment amount.
e plaintiff claims that the discretion makes
the prepayment clause in the agreement too
uncertain to be enforceable. As an alternative,
the plaintiff claims that even if the clauses are
not void,
CIBC overcharged by not taking into
account the fact that money paid sooner has a
greater value than money paid later.
e court accepted there may be
arguments against the plaintiff's positions
but decided it was appropriate for a court
to hear the arguments and decide the issues
aer a trial. Should
CIBC lose the case, the
expectation is that it would have to refund
large amounts of the prepayment penalties it
charged. However, before potential recipients
of the money go on a spending spree, be aware
that these cases can take years to resolve.
•
Ray Basi, MBIBC Director of Policy
and Education