Law Times

Law times • OctOber 17, 2011 FOCUS PAGE 13 Court delivers bad news for litigation loans Ruling follows series of favourable decisions on third-party financing BY JUDY VAN RHIJN For Law Times health-care providers, and their clients looking for alternative forms of bridging fi nance, a re- cent court decision has poured cold water on the use of litiga- tion loans. Despite a series of judg- A ments that has shown a grow- ing acceptance of the reason- ableness and necessity of ac- cessing third-party fi nancing to allow proper preparation for trial, a recent fi nding that the interest on such loans isn't recoverable as a disbursement may well curtail their use in Ontario. In Giuliani v. Region of Hal- ton, the plaintiff sought dam- ages for injuries sustained in a traffi c accident of $1,250,000. Prior to the commencement of trial, the parties agreed on damages in the amount of $750,000, excluding pre-judg- ment interest, legal fees, HST, and disbursements. Th e court found the plaintiff to be 50 per cent responsible for the acci- dent and, as a result, awarded her $375,000. When it came to costs, the plaintiff included a claim for $92,734.26 for interest payable on a loan taken out to fund the litigation. Th e principal amount t a time when reduc- tions in accident com- pensation have lawyers, of the loan was $150,000. Th e annual rate of interest for the loan was 42 per cent, which rendered an eff ective annual rate of 51.1 per cent. Th e loan was repayable only if the plain- tiff was successful. Superior Court Justice John Murray considered these terms says he's not a big fan of liti- gation loans. "Litigation loans are more like credit card loans," he says. "I mostly discourage their use, but that is not to say that clients can't fi nd these ser- vices on their own, so a lawyer should give them some advice." Gluckstein notes he has when it had been put on no- tice that the plaintiff was incur- ring costs; the expenses were reasonable and relevant to the prosecution of the case; and the defendant was in a position to pay but chose not to do so. Th e court upheld that notion in Milne v. Clarke in 2010. To our frustration, as in any new industry, it is not yet regulated. There is a broad discrepancy between lender rates even though they all claim to be competitive. to be unconscionable and un- reasonable. He said that to require the insurer to pay that amount "would bring the ad- ministration of justice into dis- repute and encourage preda- tory lenders whose business it is to extract unconscionable amounts of interest from vul- nerable individuals." While Stephen Pauwels of BridgePoint Financial Services Inc. concedes that the judge "didn't beat around the bush" when expressing his opinions, he believes that the terms of the loan in question in the case aren't indicative of those his company or most of its com- petitors off er. "To our frustra- tion, as in any new industry, it is not yet regulated," he says. "Th ere is a broad discrepan- cy between lender rates even though they all claim to be competitive." Charles Gluckstein of Gluckstein & Associates LLP never seen a loan for more than $15,000 to $20,000 for disbursements. In Bourgoin v. Ouellette, a "If you rack up debt early in the litigation, you'll never settle the claim and after three or four years the interest will be amazing. I'm more in favour of borrowing closer to the end of litigation." John Rossos, also of Bridge- Point, has compiled a list of more favourable decisions in a paper on the recoverability of fi nancing costs in personal injury litigation. In McCreight v. Currie, the court found the interest charged to be a rea- sonable and fully recoverable expense. Th e decision set out that the defendant had to pay plaintiff fully recovered the in- terest on a loan from a third- party litigation fund where the eff ective rate was 32.9 per cent per year. Th e judge distin- guished between circumstances where the retainer agreement made counsel responsible for disbursements and those where the client was responsible for them. In New Brunswick, counsel would be restricted to an interest rate of seven per cent, but the client wasn't pre- vented from recovering the full cost of fi nancing from the de- fendant. Th en there was the On- tario case of Herbert v. Brantford (City), in which an expert charged interest on an account. Superior Court Jus- tice Alan Whitten noted that without taking on fi nance, the litigants may very well have not been able to aff ord other- wise pertinent expert opinions and testimony. Whitten didn't allow full recovery in that case, however. "Unfortunately, defence counsel may jump on this latest case in refutation of a growing body of previous deci- sions that have stated that the fi nancing costs of reasonable third-party funding are direct- ly recoverable," says Pauwels. "I don't think it does do that. . . . If the terms are reasonable and the party mitigates them by seeking out the least expensive terms, they should be recover- able." For his part, Gluckstein calls Giuilani an important deci- sion. "It's not a very good prec- edent going forward for the litigation loan industry, but if you need to borrow to survive, what are you going to do?" Giuliani is now under ap- peal. ENSURE COMPLIANCE WITH THE CODES OF PROFESSIONAL CONDUCT NEW EDITION LEGAL ETHICS, SECOND EDITION MARK M. ORKIN, Q.C., LSM Find answers to the latest issues regarding legal ethics. Legal Ethics, Second Edition provides you with a concise summary of the history of legal ethics with updated reference to the current codes of professional conduct from across the country. The author provides valuable commentary and analysis that clarifi es the principles. You get a clear understanding of your current responsibilities to your client, to the court, to yourself, and to your profession. THE SECOND EDITION BRINGS YOU UP TO DATE ON: • The Canadian Bar Association (CBA) Code of Professional Conduct • The new Model Code of Professional Conduct from the Federation of Law Societies of Canada (FLSC) • Recent case law • Current issues such as advertising and working with the media 1.800.263.8537 www.henderson.ca Proud Sponsor of Navigating this resource is easy. A concordance allows you to quickly compare the CBA Code with the FLSC Model Code and the codes of professional conduct from law societies across the country. And each principle discussed is illustrated with relevant cases and extensively cross-referenced to the different codes of professional conduct from law societies across the country. Your Partners in Service® Since 1981 ORDER # 804522-63733 $95 Hardcover 978-0-88804-522-5 ntitled-3 1 11-10-11 10:07 AM AVAILABLE RISK-FREE FOR 30 DAYS Order online at www.canadalawbook.ca Call Toll-Free: 1-800-387-5164 In Toronto: 416-609-3800 Shipping and handling are extra. Price subject to change without notice and subject to applicable taxes. approx. 340 pages July 2011 CANADA LAW BOOK® www.lawtimesnews.com

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