Executive Summary: Key Legal and Evidentiary Issues

• The central issue is whether Scotia's practice of automatically renewing residential mortgages into six-month closed term mortgages at higher posted rates constitutes a breach of s. 8 of the Interest Act.
• Alleged causes of action include violations of the Interest Act, breach of contract, unconscionability, and unjust enrichment arising from the autorenewal provisions in Scotia's standard form mortgage contracts.
• Scotia argued that its autorenewal provisions prevent borrowers from falling into default and that s. 8 of the Interest Act does not apply because no "arrears" arise in an automatic renewal.
• Admissibility of portions of the expert report of Dr. Marsha Courchane was contested, as the plaintiff argued it impermissibly offered opinion evidence on questions of domestic law.
• Certification under the Class Proceedings Act, 1992 required the plaintiff to show a viable cause of action, an identifiable class, common issues, preferable procedure, and an appropriate representative plaintiff.
• Scotia is the only one of Canada's "Big Five" banks that automatically renews borrowers into closed term mortgages, distinguishing its practice from RBC, TD Bank, CIBC, and BMO, which renew into open term mortgages.

Facts of the case

Shakya Abeywickrama and her husband entered into a five-year closed fixed-rate mortgage at 3.34% with the Bank of Nova Scotia (Scotia) in 2018 to purchase their first home in Saskatoon. As the mortgage's maturity date of August 22, 2023 approached, Ms. Abeywickrama decided not to renew with Scotia, having secured more favourable terms from another lender. In June 2023, she advised Scotia of her intention not to renew, and in July 2023, she and her husband signed a payout request authorizing her preferred lender to discharge the mortgage before maturity. Scotia sent Ms. Abeywickrama a letter on July 18, 2023, setting out her maturity date, end-of-term options, and the automatic renewal provision as required by banking legislation. However, Scotia did not receive the payout request until August 17, 2023, and on August 21, 2023, at 12:01 p.m., notified her preferred lender that it could not process the payout due to signature verification issues. On August 22, 2023, without further notice, Scotia automatically renewed the mortgage into a fixed-rate six-month closed term at 7.75%, increasing Ms. Abeywickrama's monthly payments by 42%. To discharge the autorenewed mortgage, she paid a prepayment penalty of $5,456.94. Scotia's Customer Complaints Appeals Office (CCAO) refused to reimburse her for the interest paid or the penalty. Following a recommendation by the Banking Ombuds Office, Scotia offered a "good faith" payment of $1,100 conditional on her signing a release, which she rejected.

A second affected borrower, Brent Mooney, swore an affidavit in support of the certification motion. Mr. Mooney entered into a five-year closed fixed-rate mortgage with Scotia at 2.79% on November 14, 2019. In 2024, he decided against renewing with Scotia and instructed his mortgage broker to obtain a payout statement ahead of his November 14, 2024 maturity date. Facing a delay, Mr. Mooney emailed Scotia on November 11, 2024, requesting renewal into an open term to avoid penalties, but his Scotia representative was out of the office and he did not contact anyone else at the bank. On November 14, 2024, Scotia automatically renewed his mortgage into a fixed six-month closed term at 7.85%. Mr. Mooney subsequently paid $7,049.11 in penalty charges to discharge the autorenewed mortgage, and his request for reimbursement was denied by Scotia's complaint office on December 27, 2024.

Ms. Abeywickrama brought this proposed class action on July 10, 2024, on behalf of all Canadian borrowers whose Scotia mortgages were automatically and/or involuntarily renewed for another term at a higher rate than their previous term. In fiscal year 2023 alone, 28,000 Scotia borrowers had their mortgages autorenewed at higher rates.

Contractual terms at issue

Scotia's residential mortgages are governed by a contract of adhesion comprising three standard form documents: the Personal Credit Agreement, the Companion Booklet, and the Standard Charge Terms (collectively, the "Contract"). The clause at issue, titled "Amendments, Extensions or Renewals" (the "Amendment Clause"), has been in place across all Scotia residential mortgages in Canada since at least 2015. It provides that if a borrower does not repay the money owing in full or enter into a renewal agreement by the maturity date, and Scotia has not advised that it will not renew, the mortgage will "automatically renew" into a fixed-rate six-month closed term at Scotia's posted rate. The plaintiff also relied on a separate contract term whereby Scotia represented that it may change interest rates "as permitted by applicable law," which she argued incorporated a requirement to comply with the Interest Act. The plaintiff further pleaded that the automatic renewal provisions are unconscionable, citing a self-evident inequality of bargaining power between a multinational banking institution and a borrower presented with a non-negotiable standard form contract.

Reasoning and analysis

The court first addressed the admissibility of the expert report filed by Scotia from Dr. Marsha Courchane, a mortgage industry expert. The plaintiff sought to strike portions of Dr. Courchane's responses to questions 5 and 6 of her report, arguing she had impermissibly opined on the interpretation of s. 8 of the Interest Act, a question of domestic law. Justice Leiper found that Dr. Courchane had confined her opinion to the mortgage lender's perspective — specifically, that banks do not consider autorenewed mortgages to be in arrears provided payments are maintained — and had explicitly stated she was "not in a position to opine on this question from a legal perspective." The court admitted the report as context evidence and evidence of the bank's perspective, while making clear it would not treat the opinion as bearing on the correct statutory interpretation of s. 8.

On the certification criteria under the Class Proceedings Act, 1992, the court worked through each of the five requirements. On cause of action, Justice Leiper considered whether it was "plain and obvious" that the plaintiff's claims would fail. The court examined s. 8 of the Interest Act, which prohibits any fine, penalty, or rate of interest on mortgage arrears that increases the charge on arrears beyond the rate payable on principal money not in arrears. Relying on the Supreme Court of Canada's guidance in Krayzel Corp v Equitable Trust Co., 2016 SCC 18, the Ontario Court of Appeal's decision in Walia v. 2155982 Ontario Inc., 2020 ONCA 493, Elle Mortgage Corporation v. Sihota, 2021 ONSC 1593, and the 2025 British Columbia decision in Five Peaks Capital Ltd. v. Global City Properties (Cottonwood) Ltd., 2025 BCSC 1726, the court found that a failure to pay a mortgage at maturity can constitute a default giving rise to "arrears" for the purposes of s. 8. The court rejected Scotia's argument that autorenewals by Schedule I banks are categorically exempt from s. 8, finding that no authority supported that distinction and that the bank's own economic perspective on arrears did not determine the legal question. The claims in breach of contract and unconscionability were also found to be tenably pleaded, though the common issue of improvidence was declined for certification given that the degree of improvidence would require individual assessments of each borrower's rate differential and circumstances.

The court found an identifiable class of two or more persons meeting objective criteria, with class membership to be refined at trial by applicable limitation periods. Common issues were certified on breach of the Interest Act, breach of contract (excluding the improvidence question), unjust enrichment, aggregate damages, punitive damages, and pre- and post-judgment interest. On preferable procedure, the court found that individual complaint mechanisms — including the bank's internal complaint process and the Ombudsman for Banking Services and Investments — were inadequate alternatives given that neither could bind Scotia nor address a systemic issue affecting thousands of borrowers. Judicial economy, access to justice, and behaviour modification all favoured a class proceeding. Ms. Abeywickrama was found to be an appropriate representative plaintiff with no conflict of interest and a workable litigation plan.

Ruling and overall outcome

Justice Leiper certified the proposed class action, save for common issue (d) on improvidence under the unconscionability claim. The plaintiff, Ms. Abeywickrama, was the successful party on the certification motion. No monetary award was made at this stage, as the decision concerns certification only; the quantum of damages, disgorgement, and punitive damages — to be determined based on Scotia's aggregate liability to the class — remains to be assessed at trial. Costs of the certification motion were not determined in the decision, with the court directing the parties to propose a timetable for brief written submissions if they could not agree.