Proper preparation is key for recovery of litigation loan interest
December 5, 2024
By Amanda Bafaro, Chief Risk Officer & General Counsel
One of your clients will inevitably need a litigation loan. To seek recovery of litigation loan interest, proper preparation is key. It will be essential to correctly set the stage for the argument of interest recovery, keeping the following tips in mind:
- Pick your facts! Not every file will lend itself to a litigation loan or the recovery of interest.
- Be clear about what the funds are for – avoid discretionary spending for luxuries.
- Ask the defence for an advance, even if you anticipate they will say no.
- Put the defence on notice of your need for the loan before you borrow.
- Be prepared to prove you couldn’t get cheaper funds elsewhere.
- Use the money for the purpose intended and keep proof.
- Disclose the loan to the Defendants when it is taken (not on the eve of trial).
- Prepare your argument thoroughly.
The law continues to develop on the issue of interest recovery in legal finance. In the personal injury context, there are a few noteworthy decisions that every litigator should have in their toolbox.
- 1. In the case of Davies v Clarington, Justice Edwards makes the case for interest recovery in paragraph 114 where he contemplates that interest recovery remains viable where the proper foundation is established:
...if a plaintiff makes a request for an advance payment and it is refused, this court is left to speculate how future requests for the funding of litigation loan interest as a disbursement may be handled by the court. Where need can be demonstrated for a litigation loan; where an advance payment has been refused by the defence and 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. [Emphasis Added]
- 2. In the August 2024 decision of Rezai et al v. Kumar, the Court declined to award interest because the funds were not used for their stated purpose and the plaintiff failed to adduce evidence that cheaper forms of funding were unavailable (paragraphs 25-30). Rezai does not dispute the potential entitlement to interest recovery as contemplated in Davies and helps provide additional guidance on how to prepare a successful application.
The Court in Rezai agreed with the defendants that the plaintiff had not provided sufficient evidence to substantiate the use she made of the “litigation loan” or that she had exhausted other funding alternatives. While the plaintiff provided emails between her counsel and the defendants' counsel requesting advances for medication, there was no evidence that the funds were used for medication or anything else. The plaintiff argued there were no other lending options available at the time but presented no evidence that attempts were made to borrow from other sources.
Rezai makes clear that loan funds should be used for the stated purpose, and the plaintiff should be able to demonstrate that they looked for cheaper sources of funding before taking out the loan.
- 3. There was a successful interest recovery strategy in the case of Leblanc v. Doucet where the Court allowed interest recovery when the plaintiff was able to show that cheaper sources of funds were not available. The plaintiff's evidence included:
“As a young person with no capital and a low income (I was only receiving $184.64 in weekly benefits under Chapter B of my automobile insurance policy), I applied to my usual financial institution, Caisse populaire Atholville-Val d’Amours, as well as to the Royal Bank of Canada in 2012 NBCA 88 (CanLII) - 5 - Campbellton for a $10,000.00 line of credit to finance these proceedings.
The Caisse populaire Atholville-Val d’Amours refused to grant me this line of credit due to my lack of income and the uncertain outcome of these legal proceedings. [...]
The Royal Bank of Canada also refused to grant me this line of credit due to my lack of income and the uncertain outcome of these legal proceedings. [...]
For this reason, in order to pay the necessary and reasonable disbursements in this matter, I was forced to seek another source of financing, that is, Seahold Investments Inc., whose head office is in Moncton, New Brunswick. [...]”
Lawyers need to consider the claim for interest recovery when the loans are obtained and not on the eve of trial. It is likely too late if you wait. Start preparing the foundation even before the loan request is made by ensuring your client can show they tried and failed to obtain cheaper sources of funding. This does not need to be an onerous task, but some efforts should be made as most plaintiff personal injury claimants who are out of work will not qualify for traditional sources of bank finance.
At BridgePoint we take a different approach to legal finance. We are committed to helping to manage your clients’ financial challenges and ensure our loans are appropriate to the client’s needs. Please contact us for further information.
All Blog Posts