Law Times

Law Times • May 4, 2015 Page 3 www.lawtimesnews.com personal injury lawyers concerned about litigation loans But company counters that counsel in one case owes it $3.2 million BY Yamri Taddese Law Times number of personal injury litigants are alleg- ing a third-party litigation funding company charged them excessive interest as they re- spond to lawsuits claiming they had defaulted on their loan payments. Following a lawsuit for non-payment by Lexfund Management Inc., a third-party litigation funding com- pany, several respondents and their lawyer are now chal- lenging the contract. None of the allegations have been proven in court. "It's unconscionable," says Lou Ferro, a personal in- jury lawyer in Hamilton, Ont., who entered into a loan agreement with Lexfund on his own behalf as well as his clients'. "What's in the Lexfund agreement that is con- cerning is that they add the interest to the princi- pal amount of the loan," says Ferro. "So it's double compound interest. Not only do they compound it but they also capitalize the interest so when you get to a cer- tain point the interest rate just shoots through the roof." The statement of defence in the lawsuit against the personal injury claimants says that in one case, a litigant who had borrowed $10,000 from Lexfund is now facing a $50,000 balance. Another defendant who borrowed $20,000 has accumulated more than $100,000 based on the same interest rate, the statement of defence alleges. Lexfund, however, rejects the allegations, with a law- yer acting for the company calling Ferro's allegations "false and without basis." "We suspect that Mr. Ferro has used an improvised calculation as to how the interest rate is calculated," said Louis Frapporti, who noted the interest rates at which the defendants borrowed are 19.5 per cent calculated monthly (for an effective annual rate of 21.3 per cent) or 24 per cent calculated monthly (for an effective annual rate of 26.8 per cent). Those figures, he said, are far be- low the 39.2-per-cent annual interest rate in Bourgoin v. Ouellette, a New Brunswick case in which the court al- lowed the plaintiff to recover the full cost of financing obtained from a third-party litigation funder. "Lexfund suspects that the respondents are not aware of these cas- es or that their lawyer has failed to make them aware of them as Lexfund has notified all the lawyers for all its borrowers of these cases . . . as they are important deci- sions insofar as they make clear that a borrower may re- cover these financing costs in the litigation," wrote Frap- porti in response to the concerns raised by Ferro. Frapporti also noted the loan application discloses the effective annual compounded rate of interest and that the borrowers had acknowledged in the agreement they had sought independent legal advice at the time. "It is particularly perplexing that Mr. Ferro should put forward these allegations on behalf of the respon- dents as he was their lawyer at the time of seeking the loan and the execution of the loan documents," he wrote. Toronto consumer finance lawyer Neil Abbott notes most financing companies will vet their contracts in or- der to avoid reaching an excessive rate of interest. "It's all a question of how you do the math," says Ab- bott, adding the court would look at whether there were other fees and charges added onto the rate that aren't ex- empt under the Criminal Code. He adds that the fact the company compounds the interest rate wouldn't be suf- ficient on its own to prove there had been excessive inter- est. "The majority of finance contracts have compound interest," says Abbott. And in a public motion record, the plaintiffs say that as of January, Ferro owes the company $3.2 million. He borrowed directly from Lexfund for his disbursement costs, according to the affidavit of Lexfund director Lyne Provencher filed in a related litigation matter. "The overwhelming majority of Lexfund's loan port- folio is with Mr. Ferro. His failure to repay these loans has imperiled the existence of our business," wrote Provencher. The affidavit also says that when Ferro spoke to Pierre Grégoire of Lexfund in 2006, he said he "could live with the rate" as long as he could borrow enough money to avoid having to shop around for more. "Lexfund's relationship with Mr. Ferro quickly deep- ened and Mr. Ferro requested that Lexfund lend directly to him in addition to the loans extended to his clients," Provencher's affidavit alleges. Each borrower completed an application form as well as a loan agreement, according to Lex- fund, which alleges breach of trust and fiduciary duty against Ferro. "Ferro breached his fiduciary duty by failing to de- liver the money on time or at all," the company said in its statement of claim against Ferro and his clients. While third-party litigation funding could be liti- gants' sole chance at access to justice, the president of the Ontario Trial Lawyers Association says the ethics of some of these funding arrangements have been "trou- bling." "There's a number of companies out there; they're not all created equal," says Steve Rastin. The association has heard about companies that charge extreme interest rates and administration fees and don't allow borrowers to repay in less than 18 months, he adds. While he says the issue is troubling, Rastin notes the as- sociation also acknowledges there's value to more afford- able schemes that allow clients who have no other way of getting the funds they need to bring their cases foward. LT NEWS Untitled-2 1 2015-01-20 1:52 PM A There's a number of companies out there; they're not all created equal.

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