Tag: Interest on Disbursements

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.

Disbursement Interest Claim Allowed at 6%

Reasons for judgement were released today by the BC Supreme Court, New Westminster Registry, allowing a Plaintiff to recover interest charged on a loan which financed disbursements.
In today’s case (Phippen v. Hampton) the Plaintiff sued for damages following a personal injury.  In the course of the claim the Plaintiff borrowed funds from a company associated with the lawfirm she hired to advance her personal injury claim.  This loan was for disbursement funding and the lender charged interest at 15%.  The Court was satisfied that the loan was needed but reduced the recoverable interest to 6%.  In reaching this conclusion District Registrar Cameron provided the following reasons:
[2]             I am satisfied based upon the Affidavit evidence provided by Ms. Phippen, that she has established that her financial situation was such that it was necessary and proper for her to seek out financing for the disbursements that needed to be incurred to pursue her claim…
[5]             Mr. Mullally goes on to say — and I do not find this to be controversial — that it is difficult for most clients who have suffered a personal injury to finance the necessary disbursements that must be incurred to advance their case.
[6]             In passing, of course, this highlights the need for contingency fee agreements that allow for access to justice and alongside that disbursement loan arrangements, if they can be accommodated by the law firm or arranged by the law firm also help with that same purpose in mind…
[12]         Turning to the circumstances of this case, Ms. Phippen was charged an interest rate of 15 percent by PIL.
[13]         In Chandi, supra, Mr. Justice Savage said that the Registrar must consider the entire context of the arrangement.  In this case — and I refer back to Mr. Mullally’s evidence — while the law firm did not itself lend the funds necessary for the disbursements to the Plaintiff, a company that the law firm or members of the law firm had a controlling interest in provided that assistance.
[14]         Looking at the matter contextually I find that the law firm was not arm’s length from the lender, PIL. This was properly conceded by Plaintiff’s counsel. In this case, the law firm arranged the necessary loan for the Plaintiff that provided for a profitable rate of interest to the lender. In the current economic climate, I am not satisfied that an interest rate of 15 percent is reasonable to pass along to the Defendant, and as Master McDiarmid and Master Young have done in the decisions I  have referred to, I will award a rate of six percent.
 

More on the Recovery of Disbursement Interest

Adding to this site’s archived posts addressing the recoverability of interest on disbursements, reasons for judgement were released last week by the BC Supreme Court, Vernon Registry, canvassing the evidence necessary to recover these expenses.
In last week’s case (Bodeux v. Tom) the Plaintiff was injured in a collision and the claim settled however the parties could not agree on various disbursements.  The Court concluded that the majority of claimed disbursements were reasonable along with interest charged on these.  In reaching this decision Master McDiarmid provided the following reasons addressing disbursement interest:
[68]         The defendants say that the plaintiff has not provided sufficient evidence for me to determine that interest was either necessary or proper. They submit that detailed financial information, such as was provided to me in a review of the plaintiff’s bill of costs in Franzman v. Munro, 2013 BCSC 1758, is required before I can conclude that interest is a disbursement which has been necessarily or properly incurred in the conduct of the proceeding. They point to the evidence presented to Registrar Cameron in Chandi v. Atwell, 2013 BCSC 830, where, in an appeal from the decision of Registrar Cameron, Mr. Justice Savage, at para. 14, summarizes a relevant fact as follows:
…In preparing for litigation, the plaintiff incurred disbursements in order to obtain necessary evidence on liability, the extent of injuries, and the quantification of damages. As the plaintiff and his family were of limited means, they required assistance in order to fund the disbursements.
[69]         Similarly, in the appeal from the decision of Registrar Sainty in MacKenzie v. Rogalasky, 2012 BCSC 156, Savage J. summarized the relevant facts in paras. 22-23 as follows:
[22]      However, due to his income loss, Mr. MacKenzie could not afford to pay for the expert reports and other trial expenses. He did not qualify for a loan from a bank or a similar institution, and his credit cards were maxed out. He had already borrowed from his family. The only source of funding available to him was a loan from Lexfund Management Inc. (“Lexfund”), a specialized disbursement lender.
[23]      Mr. MacKenzie obtained the loan from Lexfund on November 26, 2009, only two months before trial. The loan was for $25,000, plus a $1,250 underwriting fee, for a total of $26,250. Under the terms of the loan, Mr. MacKenzie could only use the funds to pay disbursements incurred in the course of litigation. The interest on the loan was 2% compounded monthly, representing an effective annual rate of 26.82%. The loan was secured by any proceeds of the litigation.
[70]         As is apparent from the materials I have reviewed, including the various medical/legal reports and the description of the accident contained in many of those reports and also contained in the affidavit of Mr. Yawney, this was a claim which, in order to be properly presented, required plaintiff’s counsel to obtain many expert reports. Those expert reports cost money. As I wrote in my decision in Franzman:
[28]      We are constantly hearing how difficult it is for ordinary people to afford access to our courts. The fee agreement entered into between the plaintiff and her lawyer facilitated her having access to the courts. …
[71]         Entering into a fee agreement in which the plaintiff’s lawyer agreed to incur the expense of necessary disbursements for the plaintiff and to finance them and charge the plaintiff for that result in the incurring by the plaintiff of a disbursement for interest which I find, on the uncontradicted evidence before me, to be both necessary and proper.
[72]         In Franzman, at para. 28, the balance of the paragraph is as follows:
The interest rate charged by the law firm, that being essentially the interest it was paying on its operating line of credit (a way in which many law firms finance their operations) is reasonable.
[73]         In Franzman, interest on disbursements was calculated at six percent simple interest.
[74]         The mere fact that the plaintiff entered into a fee agreement which provided for charging disbursements at a rate appropriate to be charged between the client and her lawyer, does not mean that that amount of the disbursement should be automatically passed on to an unsuccessful litigant.
[75]         For example, retainer agreements often provide that the law firm will charge its client photocopies at an agreed upon rate. A photocopy rate allowed by registrars is usually less than the rate agreed to as between the law firm and its client.
[76]         I am charged with assessing and allowing a reasonable amount for disbursements. The six percent allowed in Franzman was a reasonable amount; economic times have not changed since that decision was rendered in September 2013. I, therefore, allow the disbursement at six percent of the amount claimed, reducing the $2,730.81 claimed to $1,638.49.

Disbursement Interest Claim Fails for Lack of Evidence Proving Necessity

While the law in BC presently does allow interest on disbursements to be recoverable in the right circumstances, a prerequisite for recovery is an evidentiary foundation proving that it was necessary to incur the interest claimed.  Reasons for judgement were released this week by the BC Supreme Court, Kelowna Registry (Babb v. Doell) rejecting such a claim due to a lack of evidence.  In reaching this decision Master McDiarmid provided the following reasons:
[11]         A claim for interest by a party entitled to costs might in some circumstances be characterized as necessary, for example, in a situation where the incurring of disbursements such as filing fees or daily hearing fees could only be done by obtaining some funding. Interest could also be a proper disbursement when it was reasonably incurred in the conduct of the proceeding even if, strictly speaking, avoidable. In Franzman, evidence was led which satisfied me that the disbursement interest which the plaintiff agreed to pay to her lawyers as part of a fee agreement was proper and I allowed, as a disbursement, the amount of interest calculated at 6%.
[12]         Most written retainer agreements contain provisions for payment of interest on unpaid accounts. Many retainer agreements contain provisions which are binding as between lawyer and client, for the payment of some disbursements at a rate higher than the rate allowed by registrars when assessing party/party costs. Even in contingency retainer agreements, plaintiffs often agree to and have the means to pay disbursements and do so.
[13]         Unlike in Franzman and in Chandi (Guardian ad litem) v. Atwell, 2013 BCSC 830, the decision relied on by the plaintiff, there is no evidence before me to assist in me establishing either the necessity or the propriety of the plaintiff’s claim for interest.
[14]         As noted above, the onus of proving either the necessity or propriety of disbursements is on the party claiming those disbursements. Absent such evidence, I am unable to make a determination that the interest claimed was either necessary or proper. Accordingly, the claim by the plaintiff for interest is denied.

"Chandi is Binding" Registrar Allows Interest on Disbursement Claim

One of the developing areas of law relates to whether interest charged on disbursements are recoverable under the BC Supreme Court rules.  The BC Court of Appeal may weigh in on the subject but until that time, useful reasons for judgement were released noting that interest on disbursements can indeed be recovered.
In this week’s case (Franzman v. Munro) the parties could not agree on the reasonableness of many disbursements incurred in a personal injury claim which totaled approximately $90,000.  The interest for financing these disbursements came to over $5,000.   Although there was mixed success on some of the claimed disbursements the Court noted that the interest charged was a fairly claimed item.  In reaching this conclusion Master McDiarmid provided the following reasons:
[27]         I find that it was necessary for the plaintiff to incur significant disbursements in order to properly pursue her claim. I find as well that the arrangement she made with her lawyer was both necessary and proper.
[28]         We are constantly hearing how difficult it is for ordinary people to afford access to our courts. The fee agreement entered into between the plaintiff and her lawyer facilitated her having access to the courts. The interest rate charged by the law firm, that being essentially the interest it was paying on its operating line of credit (a way in which many law firms finance their operations) is reasonable.
[29]         Defendant’s counsel advised that Chandi is under appeal. Plaintiff’s counsel pointed out that the plaintiff has no ability to control whether that appeal will ever proceed, and the plaintiff should not be restricted from executing on its judgment, including costs, while awaiting the unknown result of an appeal.
[30]         Savage J., at paras. 35 and 36, gave a succinct and accurate analysis of comity and the principles enunciated in Re Hansard Spruce Mills, [1954] 4 D.L.R. 590 (BCSC), as follows:
[35] In Re Hansard Spruce Mills, Wilson J., as he then was, was asked to give a ruling that was at direct variance with the ruling of a fellow judge of the Supreme Court. In refusing to contradict the ruling of a judge of the same court, Wilson J. said:
The Court of Appeal, by overriding itself in Bell v. Klein, [1954] B.C.J. No. 152, has settled the law. But I have no power to overrule a brother Judge, I can only differ from him, and the effect of my doing so is not to settle but rather to unsettle the law, because, following such a difference of opinion, the unhappy litigant is confronted with conflicting opinions emanating from the same Court and therefore of the same legal weight. This is a state of affairs which cannot develop in the Court of Appeal.
Therefore, to epitomize what I have already written in the Cairney case, I say this: I will only go against a judgment of another Judge of this Court if:
(a)        Subsequent decisions have affected the validity of the impugned judgment;
(b)        it is demonstrated that some binding authority in case law, or some relevant statute was not considered;
(c)        the judgment was unconsidered, a nisi prius judgment given in circumstances familiar to all trial Judges, where the exigencies of the trial require an immediate decision without opportunity to fully consult authority.
If none of these situations exist I think a trial Judge should follow the decisions of his brother Judges.
Re Hansard Spruce Mills at 592.
[36] Re Hansard Spruce Mills has been cited in over 460 cases (and counting). It has a lengthy history of application in British Columbia courts and has been described as the “dominant approach” to judicial comity in Canada: Debra Parkes, “Precedent Unbound? Contemporary Approaches to Precedent in Canada” (2007) 32 Man. L.J. 135 at 160.
[31]         Chandi is binding on me. No restriction is placed on the award of interest as part of my assessment of costs. The interest claimed is both necessary and proper, and is claimed in a reasonable amount. It is allowed in full as claimed.

Court Clarifies Recovery of Interest on Disbursements

Update November 17, 2014 – in Reasons released today the BC Court of Appeal overruled the below decisions and found interest on disbursements cannot be recovered.
 
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Prosecuting an injury claim to trial often involves thousands if not tens of thousands of dollars in disbursement expenses.  If a litigant is victorious can they claim interest on these expenses?  Two competing judgement were heard together on appeal clarifying this issue (Chandi v. Atwell).  In short, Mr. Justice Savage held that interest on disbursements can be recoverable.  The Court provided the following reasons:
[28]         In Milne, the plaintiff was injured in an automobile accident. Following the injury, the plaintiff had three M.R.I. examinations over three years. An account was rendered to the solicitor for the M.R.I. examinations, which included interest on the unpaid balances. The account was paid.
[29]         The action was settled for an agreed sum, plus costs. The matter of costs was referred to the registrar, who ruled that the interest component of the M.R.I. account could not be recovered as part of a cost assessment. The appeal came to the Supreme Court as an appeal of the decision of a master sitting as a registrar of the court.
[30]         Mr. Justice Burnyeat considered various decisions of registrars and masters, which were in apparent conflict….
[32]         Mr. Justice Burnyeat held as follows:…
the law in British Columbia is that interest charged by a provider of services where the disbursement has been paid by counsel for a party is recoverable as is the disbursement. The interest charge flows from the necessity of the litigation. If the disbursement itself can be assessed as an appropriate disbursement, so also can the interest owing as a result of the failure or inability of a party to pay for the service provided. In order to obtain the M.R.I., it was necessary to pay not only the $975.00 cost but also the interest on any unpaid balances that were not paid immediately. The cost plus interest was the cost of obtaining the M.R.I. The claim for interest should have been allowed.
[70]         To the extent that Burnyeat J. preferred the reasoning in McCreight to the reasoning in the other cases, I note that of these cases, only Hudniuk was from a fellow judge. Hudniuk is obiter dicta in an oral ruling delivered to counsel while considering a jury charge. When confronted by conflicting decisions from masters and registrars and obiter dicta from a fellow judge in an oral ruling that was at best nisi prius, Burnyeat J. was bound to decide the correct interpretation according to his best lights, which he did: R. v. Pereira, 2007 BCSC 472 at para. 48, citing Young v. Bristol Aeroplane Co., [1944] 2 All E.R. 293 (C.A.).
[71]          In the result, judicial comity persuades me that I should follow the decision in Milne. There is nothing in the interests of justice that persuades me to exercise my discretion to depart from this practice.

New Brunswick Court of Appeal Finds Interest on Disbursements Recoverable in Injury Litigation


I have previously discussed the uncertainty about whether interest on disbursements is a recoverable item in the prosecution of BC personal injury claims.  I understand the BC Court of Appeal will have the opportunity to canvass this issue in the upcoming months in an appeal of the competing Chandi and McKenzie decisions.
In New Brunswick, fortunately, the law has just been clarified with the Court of Appeal of New Brunswick addressing the issue head on in reasons for judgement released last week.  In short the Court held that interest on disbursements could in fact be recovered.
In last week’s case (LeBlanc v. Doucet) the Plaintiff was injured in a motorcycle collision.  He could not finance his lawsuit for damages and approached a lender who provided over $26,000 in disbursement financing.  By the time of resolution the interest on the loans topped $14,000.  The New Brunswick Court of Appeal held that interest could be a recoverable item.  In reaching this conclusion the Court provided the following reasons:
   The appellant, Francis LeBlanc, lacked the means to finance his action in damages against the respondents. His impecuniosity compelled him to take out loans from an independent third party to cover litigation expenses, all for the purpose of securing access to justice. While no provision of the Rules of Court expressly allows interest on such loans as a “disbursement”, sub-para. 2(14) of Tariff “D” of Rule 59 fills the gap. It suffices that those loans were “necessarily incurred” to secure the just determination of the proceeding and that the interest rates were “reasonable”. The evidence shows that these conditions were met in the present case. Accordingly, the clerk was duty bound to allow, as a disbursement, the interest ($12,665.41) on the loans required to cover the other disbursements he had approved. In short, these are the reasons that caused me to join my colleagues in reversing the decision of the judge of the Court of Queen’s Bench, sitting on appeal, which upheld the clerk’s rejection of Mr. LeBlanc’s interest reimbursement claim.
While this judgement is not binding in BC it certainly may be influential when the BC Court of Appeal addresses the issue.

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.

Interest on Disbursements Disallowed in Personal Injury Claim

Update November 17, 2014 – in Reasons released today the BC Court of Appeal overruled the below decisions and found interest on disbursements cannot be recovered.
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Update – May 17, 2013 – the below decision was overturned on Appeal.  You can click here to read about this development
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A very uncertain area of the law relates to recovery of interest on disbursements.  Last year the BC Court of Appeal declined to resolve this uncertainty.  Reasons for judgement were released today by the BC Supreme Court, New Westminster Registry, further weighing in on this inconsistent area of law finding that interest on disbursements is not recoverable.
In today’s case (MacKenzie v. Rogalasky) the Plaintiff was injured in a motor vehicle collision.  In the course of the lawsuit the Plaintiff borrowed $25,000 to finance the disbursements in his case. Following trial the interest on this loan was over $11,000.  The Plaintiff sought to recover this interest but Registrar Sainty declined to allow this claim.  In doing so the Court provided the following reasons:

[33]Based on all of the matters that I have considered — and I have had this matter under consideration for some time; I reviewed all of the submissions before coming here today and then today I have heard even more comprehensive submissions from counsel — I find that I am not bound by the decision of Mr. Justice Burnyeat in Milne. None of the decisions cited to me in favour of awarding interest, including Milne, are on all fours with the facts before me. Milne arose in the context of settlement of an action. Here, the matter was decided following a trial. Further, I find that Mr. Justice Burnyeat’s comments in Milne were obiter and are not binding on me. The case before me is also distinguishable from the decision of Registrar Cameron in Chandi as, in that case, counsel told the Learned Registrar that he was bound by Milne. His Honour was not given the benefit of the submissions I have had regarding the nature of that decision; nor of the impact of theCourt Order Interest Act on his decision. On that basis I may distinguish his reasons.

[34]That, of course, does not end the matter because the fundamental question still remains to be answered: Is this a disbursement that is recoverable by the plaintiff? I think that it is not on the basis of the arguments made by Mr. Parsons, most particularly those related to the impact of the Court Order Interest Act on claims of this nature.

[35]Firstly, a successful party’s right to claim disbursements does not actually arise until the action itself has been determined and so, until the judgment has been rendered, no entitlement arises to recover any costs or any disbursement. Accordingly there can be no right to claim any disbursement until the determination of the action.

[36]The decision in Milne was made without the benefit of the extensive argument that was before me, particularly the argument based on the application of the provisions of the Court Order Interest Act. That Act makes it clear that the legislature did not intend that interest be recoverable on disbursements.

[37]Nor can it be said that the object of costs (as compared to damages for a tortious act) is to return a party to his pre-litigation status and thus interest ought not to be recoverable. Costs are not intended to provide full indemnity to a successful party and the successful party is only entitled to recover necessary or proper disbursements at a reasonable amount. In my view it cannot be said that interest on disbursements is a necessary and proper adjunct of litigation. It is simply one of those unfortunate matters that arose in the circumstances of this particular plaintiff and I find it is not reasonable that the plaintiff recover it.

[38]So, for all of these reasons, I am going to disallow the plaintiff’s claim for interest paid to the third party lender in respect of the loan to fund the disbursements.

Personal Injury Lawsuits and Lawyer Lending


Reasons for judgement were released last week by the BC Supreme Court, New Westminster Registry, discussing the propriety of lawyers lending money to clients in the context of a personal injury lawsuit.
In last week’s case (March v. Stanley T. Cope, Personal Law Corporation) the Client was injured in a 2007 motor vehicle collision.  She retained a lawyer to represent her.  In the course of the lawsuit, in addition to funding disbursements, the lawyer provided the client “two $5,000 advances” and charged interest on these loans at 18%.
The Client eventually discharged the lawyer and hired new counsel.  The case then settled.  A dispute arose as to how much the former lawyer was entitled to.  The client argued the 18% rate of interest “should be reduced from the contractual rate to a much lower figure of 4 percent“.   District Registrar Cameron ultimately allowed the rate of interest as charged but provided the following words of caution addressing lawyer/client loans:

[36] I do wish to make some observations respecting the two $5,000 advances. While I have accepted that Ms. March agreed to pay interest on these sums and was reminded of her agreement in the periodic billing she received from Mr. Cope, I am not persuaded that the contingency fee agreement contemplates such advances.

[37] It behooves a solicitor to clearly and carefully document any financial matters between himself and his or her client. If a client is to obtain an advance from a lawyer, he or she should receive a letter from the lawyer setting out the agreement, documenting all of the relevant terms and setting out the reasons for the advance. The client should also be given the opportunity and urged to obtain legal advice before concluding the agreement to borrow money from her lawyer.

[38] This should all be done to guard against the lawyer taking what would be an inappropriate personal interest in the litigation thereby putting at risk his or her obligation to provide the client with objective advice and undivided loyalty.

[39] In this case, I am satisfied that Ms. March did not suffer any detriment from the absence of clear documentation for these two loans but that may not always be the case. Accordingly, I will allow Mr. Cope the interest claimed on the two advances in keeping with his oral agreement with Ms. March.

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If you would like further information or require assistance, please get in touch.

ERIK
MAGRAKEN

Personal Injury Lawyer

When not writing the BC Injury Law Blog, Erik is the managing partner at MacIsaac & Company, based in Victoria, B.C. He is also involved with combative sports regulatory issues and authors the Combat Sports Law Blog.

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