Davies involves a motion that occurred in late March 2021. A lengthy trial occurred, relating to a train derailment that occurred in November 1999.[1] The claim originated as a class action lawsuit, which included the plaintiff Zuber.[2] The class action claimants settled, with the exception of Mr. Zuber. Mr. Zuber’s trial commenced in November 2014.[3] Mr. Zuber had obtained financial assistance from four separate litigation loan providers. The principal amount borrowed was approximately $500,000. The court points out that interest charges on these loans included annual interest rates ranging from 18 – 29%, and some loans included a clause for interest to be compounded monthly.[4]
The plaintiff Zuber was awarded damages in the amount of $50,000 at trial. Prior offers to settle, made by the defendants, substantially exceeded this cost award.[5] The defendants were thus successful at trial, in beating their prior offers to settle. Accordingly, the defendants obtained a Costs Award exceeding $3,400,000. In Hearing Cost Submissions, the court dealt with whether the plaintiff could recover as a disbursement the interest on the litigation loans. The court declined to include as disbursements any amount for interest accrued on the loans.[6] The court also heard submissions that the non-party litigation loan providers should pay the costs awarded to the defendants. But the court declined to make such an award.[7]
The defendants sought to recover costs from four litigation loan providers, who provided loans to either the plaintiff Zuber or his counsel, in order to fund Mr. Zuber’s litigation. The amount owing to these lenders, with interest charges, exceeded $6,000,000.[8] The four loans can be briefly summarized as follows:
Lender Principal Amount(s) Borrowed Approx. Amount Owing
Seahold $35,000 $1,400,000
Yorkfund $144,320 $1,600,000
Lexfund $100,000 $3,100,000
Bridgepoint $136,000 $220,000 ($89,000 already repaid)
Given these interest charges, the court acknowledges the difficulty that these loans present, from the plaintiff perspective, when attempting to reach settlement. The court points out that the accrued interest on the litigation loans presents an impediment to a fair and sensible resolution of the case.[9] Similarly RSJ Edwards remarks, “the accrual of the compounded interest in this case demonstrates, in my view, how litigation loans may in fact be an impediment to the fair resolution of a claim, and thus an impediment to access to justice.”[10]
While the court does not comment upon the loans individually, RSJ Edwards does remark that “The interest accrued and still owing by Mr. Zuber is unconscionable.”[11]
Further, in the context of litigation loans, where it qualifies as a “third-party funding agreement” under Ontario’s Class Proceedings Act, with respect to class proceedings, the court in this case also acknowledges the importance of access to justice, and remarks that the loan agreement requires court approval, and that the court must be satisfied that “the loan agreement is necessary to provide access to justice, the access to justice facilitated by the loan agreement must be substantively meaningful; and the loan agreement must be a fair and reasonable agreement that facilitates access to justice.”[12]
In further criticism of the interest charges on the litigation loans, RSJ Edwards also references the court’s decision in Guilani v. Region of Halton.[13] Among the concerns referenced are as follows:
The interest rate on the loan obtained by the plaintiff for disbursements is unconscionable … this loan agreement does not facilitate access to justice. It is difficult to believe that any lawyer would refer a vulnerable client to such a lender.[14]
The concept of reasonableness governs the court’s treatment of disbursements. The interest payments owed by Ms. Guiliani to Lexfund are unreasonable. This court will not require the defendants to reimburse interest charges on the Lexfund loan whether such interest charges are calculated as of November 15, 2010 or thereafter. To do otherwise would bring the administration of justice into disrepute and encourage predatory lenders whose business it is to extract unconscionable amounts of interest from vulnerable individuals.[15] [emphasis added]
…this court should not reward, sanction or encourage the use of such usurious litigation loans … otherwise such litigation loans will be seen to be judicially encouraged and could become a commonplace tactic.[16]
Further criticism of these litigation loans was provided by the defendants, in their submissions that the litigation loan providers should be responsible for the defendants’ costs. The defendants argued that the loan agreements were both abusive and champertous.[17] Among the defendants’ submissions was there is no cap on the loan interest. The defendants further submitted that, as noted in Schenk v. Valeant Pharmaceuticals International Inc,[18] the lack of a cap on the interest charges is an important consideration when assessing whether the loan constitutes champerty and maintenance.[19]
The court also discussed when a costs award can be made against a non-party. The court’s discretion to make such an award comes from section 131(1) of the Courts of Justice Act, or pursuant to the court’s inherent jurisdiction to award costs against a non-party who commits an abuse of process.[20] Under such circumstances, and as a matter of procedural fairness, the court points out that notice must be given at the earliest opportunity if there is intention to seek costs against the non-party – ie the litigation loan provider, under the present facts.[21]
Additionally, RSJ Edwards provided commentary regarding the ability for Plaintiffs to be able to recover interest on litigation loans as a disbursement, indicating that: (i) if a plaintiff intended to recoup the accrued interest on a litigation loan as a disbursement, they “must” disclose the details of the litigation loan to the defendant;[22] the plaintiff should also have considered other methods of funding the costs of disbursements prior to incurring the onerous interest costs associated with certain types of litigation loans;[23] while the loan documents themselves may be privileged, they should be disclosed in Schedule B of the litigant’s Affidavit of Documents;[24] and that “actual disclosure to the defence of the litigation loan documentation could trigger the potential exposure to the defence for accrued interest as a disbursement”.[25] He continued to say that where a Plaintiff needed litigation loan, they should consider requesting an advance payment from the Defence (whether under s. 258.5(2) of the Insurance Act, R.S.O. 1990 c.18 where liability is admitted, or even in cases it is not).[26] The court acknowledged the defence may be reluctant to make such an advance payment, which would allow the plaintiff to continue the pursuit of the litigation.
In elaborating on the above comments, RSJ Edwards noted: (i) where there is a demonstrated need for a litigation loan; and (ii) where an advance payment has been refused by the defence; and (iii) where there has been disclosure to the defence of the litigation loan details, “one can foresee possible successful requests by the plaintiff to treat litigation loan interest as a disbursement.”[27]
While the motion pertaining to the present Davies decision did not directly challenge the validity of litigation loans, the court’s comments could nonetheless influence how such loans are treated in subsequent jurisprudence. More specifically, the validity of such exorbitant interest charges, forced upon vulnerable parties that find themselves in undesirable economic circumstances, will likely attract further commentary by the courts.
[1] Davies v. Clarington, 2021 ONSC 6449, at para 7.
[2] Ibid, at para 8.
[3] Ibid, at para 11.
[4] Ibid, at para 16.
[5] Ibid, at paras 17, 18.
[6] Ibid, at para 18.
[7] Ibid, at para 117.
[8] Ibid, at para 1.
[9] Ibid, at para 22.
[10] Ibid, at para 109.
[11] Ibid, at para 115.
[12] Ibid, at para 92.
[13] Guiliani v. Region of Halton, 2011 ONSC 5119.
[14] Ibid, at para 56; in Davies, supra note 1 at para 92.
[15] Ibid, at para 57; in Davies, supra note 1 at para 92.
[16] Ibid, at para 59; in Davies, supra note 1 at para 92.
[17] Davies, supra note 1 at para 39.
[18] Schenk v. Valeant Pharmaceuticals International Inc., 2015 ONSC 3215.
[19] Davies, supra note 1 at para 40.
[20] Davies, supra note 1 at para 62.
[21] Davies, supra note 1 at para 70.
[22] Ibid at para 109.
[23] Ibid at para 109.
[24] Ibid at para 110.
[25] Ibid at para 110.
[26] Ibid at para 113.
[27] Ibid at para 114.
