A Costly Reality: Unrecoverable Interest and "Litigation Loans"
In Canada there are several litigation loan companies in operation that provide financing for injured Plaintiffs. In short they provide loans and use the plaintiff’s personal injury claim as collateral. They charge interest for this service, sometimes this interest is incredibly steep.
Plaintiffs need to exercise great caution before taking on such high interest loans for the simple reason that the interest is likely not a recoverable damage in their personal injury lawsuit. Reasons for judgement were released yesterday by the BC Supreme Court, Vancouver Registry, addressing this issue.
In yesterday’s case (Campbell v. Swetland) the Plaintiff sustained multiple injuries in a catastrophic motorcycle collision. These included brain injury with cognitive impairment, an open book pelvic injury, incontinence and a host of other orthopaedic and soft tissue injuries. The parties settled some issues before trial including non-pecuniary damages agreed at $290,000.
Prior to trial the Plaintiff borrowed funds from a litigation loan company. By the time of trial the interest on these loans was over $42,000. The Plaintiff sought to recover this interest. Mr. Justice Wong concluded such a claim is not sustainable as it is too remote. The Court provided the following reasons:
[91] The plaintiff in opening and closing submissions has claimed interest incurred on loans post accident in order to complete necessary renovations to her home and funds to cover her living expenses. She submitted that post accident, with her severe injuries, she was incapable of gainful employment. Her only source of income was a $900 monthly government disability cheque. Hence the loans from lending institutions with high rates of interest. The total interest now owing from two loans is now $42, 453.
[92] It should be noted the plaintiff’s claim for the cost of financing her loans is not pled in her Notice of Civil Claim.
[93] The Defendant submits that it is not a recoverable head of damage. It is not known to law, by virtue of remoteness, or it is a special damage; special damages have already been resolved by agreement of the parties…
[96] In employment law, interest paid on monies borrowed to cover personal expenses while in between jobs have been held not to be recoverable as special damages [Millman v. Leon’s Furniture Ltd. [1983], 83 CLLC 14,071 ((Ont. Co. Ct.) and Kozak v. Montreal Engineering Co. (1984), [1985] 2 WR 641 at page 647 (Alta. Q.B.)].
[97] Similarity, in contract law, losses arising from a plaintiff’s impecuniosity or lack of financial resources have been held not recoverable [Freedhoff v. Pomalift Industries (1971) 19 DLR 3d 153 at page 158 (Ont. C. A.)]…
[99] The Plaintiff spent the initial months post-accident in hospital, but her first lawyer arranged a $30,000 “litigation loan” on November 13, 2008. Of that $30,000, $3,000 was immediately paid as a “processing fee”. After 18 days, $600.00 of interest was already due and owing.
[100] The Defendant submits that the loan was a result of the Plaintiff’s pre-accident indebtedness, not any losses sustained by the Plaintiff as a result of any negligence by the Defendant. If they were, then such losses are too remote and were not reasonably foreseeable to the Defendant.
[101] If a person’s own impecuniosity is the cause of damage, then that damage is not recoverable [Roopam Fashions v. Greenwood Insurance and Broco (2008) BCPC 0254].
[102] The Defendant further submits that the Plaintiff has not reasonably mitigated her financial situation. She has not tried to sell off her classic and prize-winning Harley motorcycle, her exercise machine and the clay art remaining in her studio.
[103] The cost of litigation financing, while not a recoverable head of damage, may be a proper disbursement. However, the most recent law out of both British Columbia and Ontario is that claims for litigation loan financing and interest are not recoverable [MacKenzie v. Rogalasky, 2012 BCSC 156 and Giuliani v. Region of Halton, 2011 ONS C5119]. In Giuliani, Mr. Justice Murray commented that the loan which the Plaintiff had obtained from Lexfund Inc. was:
in effect a contingency arrangement which allows the lender to make huge profits from the proceeds of litigation rather than from a commercially normative interest rate on a risky loan. (para. 52)
and
I am in complete agreement with the submissions of Defendants’ counsel that: “this Court should not reward, sanction or encourage the use of such usurious litigation loans, which in this case has interest provisions that are arguably illegal, otherwise such loans will be seen to be judicially encouraged and could become a common-place tactic.” I agree that an award of interest in this case would likely have an adverse impact on other Defendants’ decisions to proceed to trial or to Appeal. I think the Defendants’ counsel is correct in stating that access to justice is a two-way street. As I have indicated above, to award interest as requested by the [Plaintiff’s counsel] would not facilitate access to justice and would undoubtedly bring the administration of justice into disrepute. (para. 59)
[104] I agree with defence counsels submissions on this head of claim and conclude that it is not recoverable.