Recovering Interest On A Litigation Loan As A Disbursement?

Davies v. The Corporation of the Municipality of Clarington, 2021 ONSC 6449

In 1999, Mr. Zuber suffered injuries while riding a VIA Rail train that derailed. Mr. Zuber then began a lengthy trial in November of 2014. During the litigation, Mr. Zuber borrowed $500,000 from four different litigation loan providers. At the end of the trial, Mr. Zuber was awarded $50,000 in damages. By this time, Mr. Zuber owed the four litigation loan providers over $6,000,000, due to the interest on his loans.

The successful defendants obtained a Costs Award of over $3,400,000. In Davies v. The Corporation of the Municipality of Clarington, 2019 ONSC 2292, Mr. Zuber made a cost submission to recover the interest owed on his litigation loans as a disbursement. R.S.J. Edwards declined to make such an award for the following reasons:

• The Defendants had no knowledge whatsoever of the fact that Mr. Zuber had received any litigation loans, and as such were unaware of any accumulation of loan interest that might have been considered a disbursement [para. 70].
• There was a possibility that Mr. Zuber had a much more reasonable alternative source available to him to fund the disbursements that were being incurred on his behalf to prosecute this action [para. 70].
• At no time did Mr. Zuber seek court approval for the litigation loan agreements as they were unfolding. Had he done so, the Defendants would have been well aware of their potential exposure to the interest that would have accrued on these loans [para. 72].
• There was no evidence to show that the proceeds of the various loans advanced to Mr. Zuber were used to fund disbursements as they were being incurred on his behalf [para. 73].

With these considerations, R.S.J. Edwards held that to require the Defendants to pay interest incurred on Mr. Zuber's loans would result in gross unfairness to the Defendants.

When can plaintiffs potentially recover interest on litigation loans as a disbursement?

In Davies v. The Corporation of the Municipality of Clarington, 2021 ONSC 6449, R.S.J. Edwards indicated that Plaintiffs are best able to recover interest on litigation loans as disbursements if the following requirements have been met:

• The plaintiff discloses the details of the litigation loan to the defendant
• The plaintiff considered other methods of funding the costs of disbursements prior to incurring the onerous interest costs associated with their type of litigation loan
• The loan documents were disclosed in Schedule B of the litigant's Affidavit of Documents

R.S.J. Edwards also suggested that where a Plaintiff requires a litigation loan, they should first consider requesting an advance payment from the defence both in cases where liability is admitted and when it is not. While the defence may be reluctant to do so, this would allow the plaintiff to continue to pursue litigation.

Summary

R.S.J. Edwards indicated that the best way to attempt to recover interest on a litigation loan as a disbursement is by complying with the following:

1. there is a demonstrated need for a litigation loan
2. an advance payment has been refused by the defence; and
3. there has been disclosure to the defence of the litigation loan details

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