BC Court of Appeal – Interest Disbursements Not Recoverable in Injury Litigation

Important reasons for judgement were released today by the BC Court of Appeal (MacKenzie v. Rogalasky) addressing an unsettled area of law, whether interest charges on disbursements incurred during the prosecution of an injury lawsuit could be recovered.  In short BC’s highest court ruled they cannot.
In reaching this conclusion the Court provided the following reasons:

[78]         In my opinion, the various iterations of the rule set out above permitting recovery of expenses focuses most naturally on the exigencies inherent in the particular litigation rather than capturing expenses arising from the financial circumstances or other choices of a party. Embedded in the rule is the requirement for a causal connection between the issues in the case and the expense incurred to prove or disprove them.

[79]         The rule, in its current form, permits the recovery of “disbursements … incurred in the conduct of the proceeding”. In my view, quite apart from the language “incurred in the conduct of the proceeding” the term “disbursement”, when used in the context of a costs rule that relates to the taxation of costs in particular litigation, does contain limits that narrow its potential broad applicability. It appears to me that the purpose of permitting the recovery of disbursements in the context of a costs regime is to permit the recovery of those expenses that arise inherently and directly from the issues in the case which relate, as the appellants suggest, to the direction, management, or control of litigation and which pay for materials and services used to prove a claim or defence. These expenses arise directly from the nature and conduct of the allegations in a proceeding. By contrast, interest expenses do not arise from the nature of the allegations or the conduct of proceedings, they arise from unrelated causes including the financial circumstances of a party. In my view, as such, they do not fall within the meaning of the word “disbursements” in the context of a costs rule.

[80]         It will be apparent that the conclusion I have reached does not depend on limiting the applicability of the word “disbursements” by reference to the phrase “incurred in the conduct of the proceeding”. I consider that the meaning of the words “disbursement” or “expense” has always excluded out-of-pocket interest expenses. The addition of the phrase “incurred in the conduct of the proceeding” in the rule in 1990 did not narrow or change the meaning of the word “disbursement” or otherwise limit its application. Rather, the phrase reinforces and confirms what has always been the case. To be recoverable a disbursement must arise directly from the exigencies of the proceeding and relate directly to the management and proof of allegations, facts and issues in litigation, not from other sources. In my view, that is what is captured by the phrase “the conduct of the proceeding”.

[81]         In my opinion, this interpretation of the rule flows naturally from the purposes of a costs regime and the guidance provided on that subject by the Supreme Court of Canada, most particularly in Walker. Several points emerge which assist in interpreting the rule. The first is that a costs regime serves multiple functions, only one of which is indemnification. Even in respect of that function, the costs regime provides only partial, and not full, indemnity to a successful party. Accordingly, one is not compelled to conclude that interest expenses must be recoverable because the purpose of the rule is to make a successful party whole. To the contrary, partial indemnification underlies both the recovery of costs on a tariff and disbursements (because the reasonable amount awarded may not fully indemnify the cost of necessary or proper disbursements).

[82]         Second, within the context of partial indemnification, costs awards should be predictable and consistent across similar cases. Only if this is the case can parties accurately assess the risks of engaging in litigation and make rational decisions about settling or prosecuting the case. Recognizing interest expenses as recoverable disbursements is inconsistent with this objective because exposure to costs and disbursements would not depend on the nature of the case itself, but on the particular circumstances of a party. These circumstances may well involve the relationship between the party and counsel and be matters the opposing party has no right to know.

[83]         Third, although costs regimes may affect access to justice, the Supreme Court has made it clear that costs are not the means of securing access to justice, except in exceptional circumstances. Of this more below.

[84]         Finally, costs awards relate to the particular case and are made as between the successful and the unsuccessful parties. On the facts of these appeals, it seems reasonable to infer that recognizing interest as an expense would lead to a transfer of resources between classes of parties in which unsuccessful defendants are exposed to the risks of paying high interest rates designed to pay for the cost of lending money, not just to the successful party in the case but other plaintiffs who receive financing but may not recover moneys to pay for their loans…

[93]         I conclude that an out-of-pocket interest expense incurred to finance disbursements is not a recoverable disbursement under Rule 14-1(5). I acknowledge that this result is likely inconsistent with the position in New Brunswick and possibly Ontario. To the extent that this is the case, I am respectfully, and for the reasons set out above, unable to agree with the conclusion those courts reached.