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Enbridge rapped for usurious late-fee penalties

The Globe and Mail - April 23, 2004
by Kirk Makin


The Supreme Court of Canada has ordered a major gas distributor to pay up to $100-million in compensation to thousands of customers who were charged usurious late-payment fees.

The court said Enbridge Gas Distribution Inc. was "unjustly enriched" and cannot hide behind the fact that a provincial regulator, the Ontario Energy Board, approved the late-fee penalty it began using in 1975.

"As a matter of public policy, criminals should not be permitted to keep the proceeds of their crime," Mr. Justice Frank Iacobucci wrote in a hard-hitting 7-0 ruling. "Since the respondent in this case was enriched by its own criminal misconduct, it should not be permitted to avail itself of the defence."

The ruling ends a class-action lawsuit launched in 1994. The class members alleged that a late-fee payment calculated at 5 per cent of the unpaid charges for that month was an enormous penalty.

"This is a huge victory for consumers and the public," said Gordon Garland, the lead plaintiff, who represented up to 500,000 members of the class. "The court rejected what I call 'the Adolf Eichmann defence,' that they were just following orders."

The gas company launched the late-payment penalty scheme to encourage customers to pay their bills promptly.

The energy board acknowledged at the time that customers who paid shortly after the penalty date would end up paying a very high rate of interest, but approved it nonetheless.

In annual terms, the 5-per-cent charge ends up being greater than 60 per cent. According to law, any charge greater than 60 per cent of a debt falls under the Criminal Code offence of usury.

A lawyer for the plaintiffs, Michael McGowan, said that until recent years, similar penalty payment schemes were common. He said that other class actions are possible in other provinces against companies -- usually monopolies -- who used them.

Mr. McGowan said Enbridge will be expected to provide rebates to existing customers and to send cheques to former customers. Taking interest payments into account, he said, the total will reach $75-million to $100-million.

He said the ruling is also likely to have a major impact on a similar lawsuit against Toronto Hydro, which charged its customers high penalty payments. The utility could be on the hook for at least $40-million in compensation to former customers, Mr. McGowan estimated.

A spokesman for Enbridge, Lisa McCarty, said yesterday that the company was "disappointed" by the ruling. She noted that in 2002, Enbridge reduced its late-payment penalty to 2 per cent. However, Mr. McGowan said this number, depending on how it is calculated, ends up soaring far higher than the 60-per-cent limit. "It still becomes astronomical," he said.

The Supreme Court originally dealt with the Enbridge case in 1998, ruling that the charges levied by Enbridge (previously known as Consumers Gas Co. Ltd.) were usurious.

A lower court judge who was supposed to determine the actual amount of compensation ended up accepting Enbridge's defence that it had been following orders from the energy board. The Ontario Court of Appeal agreed.

In overturning that decision yesterday, Judge Iacobucci said the repayments to customers will date back to 1994, when the commencement of the lawsuit ought to have served as a warning that it had been making a mistake. "After the action was commenced and the respondent was put on notice that there was a serious possibility its late-payment penalties violated the Criminal Code, it was no longer reasonable to rely on the OEB rate orders to authorize the late-payment penalties," Judge Iacobucci said.

He said there was superficial logic to Enbridge's argument that it ought to have been able to rely on the energy board to approve only legal fee structures, but that this point was overridden by the public-policy interest in preventing criminals from profiting from their crimes.

Enbridge gambled when it decided to continue levying the penalties after the litigation began, Judge Iacobucci said, and it lost.


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