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Hav-A-Kar Leasing: Accelerated Payments in Canada ' Close But Not Quite Right
The objective of awarding damages for a breach of contract is to put the injured party in the same position as if the contract had been properly performed. This principle is commonly included in contracts through termination provisions that allow the injured party to recover future payments upon an event of default. Where all remaining payments automatically become due, the agreement typically includes a mechanism to discounted payments to take into account the time value of money. These acceleration clauses, if properly drafted, can be considered a genuine pre-estimate of damages as the lessor is in the same position it would have been in had the contract been completed. The key to a fair acceleration clause is to allow for proper discounting as to reflect the value of receiving the remaining payments before they would otherwise become due. If the lessor were to collect full payments at the time of default, the lessor would be in a better position than had the default not occurred.
The use of acceleration clauses has been accepted by Canadian courts; however, there is at least one case where the courts allowed for an accelerated payment clause to be enforced without discounting payments. An Ontario Court of Appeal case, Hav-A-Kar Leasing Ltd. v. Vekselshtein, 2012 ONCA 826 (“Hav-A-Kar“), enforced such a clause and did not discount payments for early receipt. As discussed below, the decision to enforce this type of clause is problematic as it gives the lessor more funds than it would have received had the agreement been fulfilled.
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