Currently, in Canada, the case law varies from province to province on whether or not interest incurred from a litigation loan can be recovered by a successful Plaintiff. With the Supreme Court of Canada recently denying leave to appeal from a British Columbia Court of Appeal decision on this issue,1 it will likely remain that way for now.
In summary, there are two basic routes available to successful Plaintiffs in seeking to recover interest paid on a litigation loan: 1) as a disbursement through a costs award; or 2) as “special damages” specifically pled in a tort action. There are two competing Court of Appeal decisions on whether interest can be recovered under a costs award: one from British Columbia denying recovery as a disbursement and one from New Brunswick allowing it, in which the Court relied on the importance of providing “access to justice” to injured Plaintiffs. The few cases on recovery of interest as under the head of “special damages” are also varied. Hopefully, should the right “test” case come along, the Supreme Court of Canada will weigh in on this issue and provide some clarity. In the meantime, however, without a firm decision on this issue from the highest court, arguably interest is recoverable in all provinces except likely British Columbia, where the facts support it and when proper evidence is provided. Below is a summary of the case law as it currently stands across Canada, including cases where
Recovery as a Disbursement: Costs Award
With proper supporting evidence, interest incurred by a successful Plaintiff on a litigation loan may be recoverable as a disbursement under a costs award in Canada except in the province of British Columbia. Based on the cases below, it is clear however, that Courts are reluctant to exercise their discretion in awarding interest as a disbursement where the facts do not support it: where the loan and corresponding interest were not necessarily and reasonably incurred for the purpose of the litigation (where the Plaintiff was impecunious before the accident, where there was no evidence as to the terms of the loan or how the interest was calculated, or where there was no evidence that without the loan the Plaintiff would not have been able to litigate her claim). Within the tabs above, is a summary of the various decisions across the provinces.
New Brunswick and (likely) Nova Scotia are the most accepting provinces in allowing the recovery of interest as a disbursement. In British Columbia, such an argument will be rejected based on the binding decision of the Court of Appeal. With persuasive facts and proper evidence filed, interest is still open to being recovered in Ontario, Alberta, Saskatchewan and the remaining provinces. The cases summarized above which rejected the recovery of interest can likely be distinguished on the basis that little evidence was provided regarding the necessity and reasonableness of the incurred interest.
While the New Brunswick Court of Appeal referred to the principle of “access to justice” to conclude that interest should be recoverable, the British Columbia Court of Appeal and lower courts in Ontario appear to disagree that “access to justice” is at all relevant to the issue. Also, there is a concern in some cases that allowing the recovery of interest on a litigation loan would contravene legislation in certain provinces, which prohibit pre-judgment interest on a cost award. Arguably, a Court has broad discretion on a costs award and as to what it considers reasonable. Therefore, there are some safeguards in place. Even if not all interest will be recoverable, that which is reasonable and necessary for the conduct of the litigation should be.
If You Are Seeking to Recover Interest as a Disbursement
- Provide evidence as to Plaintiff’s impecuniosity;
- Provide evidence that the loan and subsequent interest was reasonable and necessary for the conduct of the litigation;
- Ideally, have evidence that the Plaintiff was rejected at a regular financial institution before he or she sought assistance from a litigation funding company. Also that his or her family or friends could not assist;
- Show that the money borrowed was used exclusively to pay for disbursements for the litigation. Be able to trace the funds loaned; and
- Make the “access to justice” argument.
Recovery as Special Damages: Tort
“Special damages” are pre-trial pecuniary losses in a tort claim. Special damages must be specifically pled in the Statement of Claim and proven. Out of pocket expenses and loss of earnings are special damages regularly awarded in personal injury cases. Special damages are reasonable expenses which the Plaintiff has incurred between the accident and trial and which “but for” the injury would not have been incurred. Therefore, questions of causation will arise and must be particularized in the Statement of Claim. The “allowabilty” of an expense is not measured by its ultimate effectiveness but by the reasonableness of the decision to incur it, given the surrounding circumstances. The compensatory principle in awarding damages in tort is to put the Plaintiff back into his or her pre-litigation position had the wrong not occurred.
Arguably, in certain circumstances, interest on a litigation loan is a reasonable expense incurred by the Plaintiff between the accident and the trial which “but for” the injury would not have been incurred.
There are few cases that comment on this, however, they are summarized and discussed below:
Caron c. Steeves,  N.B.R. (2d) (Supp) No. 89
In this case, the Plaintiff sought to recover interest paid on a line of credit under special damages along with other pre-trial expenses, including, repairs to her bicycle from the accident, medical expenses, and loss of earnings etc.
The Court noted that “the Plaintiff had to borrow funds because [she] did not work and interests are legitimate expense.” 2[Translation] The Plaintiff recovered $843.61 in interest. Unfortunately, the Court did not provide further analysis as to why interest was a legitimate expense.
Campbell v. Swetland 2012 BCSC 423
In this personal injury case, the Plaintiff claimed as special damages, interest incurred on loans post-accident in order to complete necessary renovations to her home and funds to cover her living expenses. It should be noted that the cost of financing her loans was not pled in her Claim as is required for special damages. Her only source of income was a $900.00 a month government disability cheque. Her first lawyer arranged a $30,000.00 litigation loan. $3,000 was immediately paid as a processing fee. After 18 days, $600 of interest was due and owing. The loans from lending institutions had high rates of interest with total interest owing from two loans being $42,453.00.
The Court relied on Leisbosch, Dredger v. Edison SS (Owners)  A.C. 449 that Plaintiffs in negligence claims: “[s]hould recover such a sum as will replace them, so far as can be done by compensation in money, in the same position as if the loss had not been inflicted on them, subject to the rules of law as to remoteness of damage.”3
The House of Lords in Leisbosch denied compensation for a special loss or extra expense due to the financial position of the Plaintiff:
But the appellant’s actual loss in so far as it was due to their impecuniosity arose from that impecuniosity as a separate and concurrent cause, extraneous to and distinct in character from the tort; the impecuniosity was not traceable to the respondents’ acts, and in my opinion, was outside the legal purview of the consequences of these acts. The law cannot take account of everything that follows a wrongful act it regards some subsequent matters as outside the scope of its selection, because ‘it were infinite for the law to judge the cause of causes,’ or consequences of consequences.4
The Court also noted that in employment law, interest paid on monies borrowed to cover personal expenses while in between jobs have been held not to be recoverable as special damages [Millman v. Leon’s Furniture Ltd. , 83 CLLC 14,071 ((Ont. Co. Ct.) and Kozak v. Montreal Engineering Co. (1984),  2 WR 641 at page 647 (Alta. Q.B.)].
Similarity, in contract law, losses arising from a Plaintiff’s impecuniosity or lack of financial resources have been held not recoverable [Freedhoff v. Pomalift Industries (1971) 19 DLR 3d 153 at page 158 (Ont. C. A.)].5
The Court concluded that the cost of litigation financing was not a recoverable head of damage. However, the facts of this case are telling. The Plaintiff carried a heavy debt load prior to the accident which included substantial loans from friends and family, a mortgage on her house that she kept refinancing and adding to, a loan to purchase a truck and unpaid income tax. The Plaintiff also did not try to sell off “her classic and prize-winning Harley motorcycle, her exercise machine or the clay art remaining in her studio” to cover her costs.6 The Defendant submitted that the loan was a result of the Plaintiff’s pre-accident indebtedness, not any losses sustained by the Plaintiff as a result of any negligence by the Defendant. If they were, then such losses are too remote and were not reasonably foreseeable to the Defendant.7 “If a person’s own impecuniosity is the cause of damage, then that damage is not recoverable.”8 The Court agreed with the defence counsel and concluded it was not recoverable.9
Isbister v. Delong 2014 BCSC 1947
The Plaintiff in this motor vehicle accident case sought to recover interest owing on loans advanced to her by her lawyers (or a corporation controlled by her lawyers) as special damages. The evidence regarding the loans was “scanty” but it appeared that at unknown times the Plaintiff borrowed approximately, $170,000.00 and that she owed $41,976.00 in interest on the loans. No evidence was provided as to how the interest was calculated or whether the interest had been paid or even if the lawyers would enforce payment. The Plaintiff submitted that the loans were necessary to enable her to pay her living expenses because she was unable to work due to her injuries and that the loans were used to pay some of the costs of her health care. Justice Bowden stated:
In my view, assuming that the interest is paid, the interest on a loan to fund general living expenses including treatment costs during the course of litigation is not recoverable as damages where, as here, it is not reasonably foreseeable and arises because of the impecuniosity of the Plaintiff. See: Campbell v. Svetland, 2012 BCSC 423, Leisbosch, Dredger v. Edison S.S. (Owners,) A.C. 449; Choma v. Canadian Vehicle Leasing Ltd.,  B.C.J. No. 1036; and Jones v. Taylor,  S.J. No. 632.10
It is important to note that the Plaintiff received (after the accident and up to the date of the trial) income of about $127,000.00. That amount exceeded her loss of income and out of pocket expenses “such that it appeared that the loans were not required as a result of the accident”.11
The Plaintiff also sought to recover the interest as a disbursement. However, there was no evidence at trial as to the amount of the loans that may have been borrowed to fund particular disbursements nor was there evidence as to whether such disbursements were necessary to the litigation or reasonable amount.12 The Court concluded that: “In the circumstances this Court declines to make an order that any part of the loans or the interest thereon should be treated as a disbursement.”13
Kaiser v. Williams, 2015 BCSC 646
The Plaintiff in this personal injury case claimed special damages in the amount of $47,073.66 to the date of trial. A portion of the total for special damages related to Mastercard interest due to her inability to service her debt while being unable to work.
The defendants argued that the interest was too remote and not reasonably foreseeable and relied on Campbell v. Swetland, 2012 BCSC 423. The Court disallowed the Mastercard interest as it related to debts which pre-dated the accident. The Court relied on Isbister v. Delong 2014 BCSC 1947 which denied interest on loans advanced to a Plaintiff to cover living expenses while she was unable to work as a result of her accident, as being too remote and not reasonably foreseeable. In Kaiser, the Court concluded that the Plaintiff’s claim for interest payments on loans incurredbefore and unconnected to the accident was similarly foreclosed because of its remoteness.14 The Court, however, did not say all interest on loans was not recoverable under the head of special damages.
Keep these in mind when seeking to recover interest in tort under the head of special damages:
- Make sure the claim for interest as a special damage is properly plead in the Statement of Claim.
- Provide evidence that the Plaintiff is impecunious and could not cover the cost of disbursements. Ideally, have evidence that the Plaintiff was rejected at a regular financial institution before he or she sought assistance from a litigation funding company. Also that his or her family or friends could not assist.
- Show that the money borrowed was used exclusively to pay for disbursements for the litigation. Be able to trace the funds loaned. A court may be reluctant to allow interest to be recovered on loans to pay for general living expenses.15
- Be prepared to show a causal connection between the Plaintiff’s inability to finance his or her litigation and the negligence of the Defendant which resulted in a deterioration of the Plaintiff’s financial position. In other words, there needs to be connection between the Defendant’s negligent actions and the Plaintiff’s inability to fund their litigation. If the Plaintiff was already in debt or impecunious before the accident, the special damages of interest would likely be too remote to be recovered.
With the Supreme Court of Canada denying leave to appeal the MacKenzie v. Rogalasky decision, the law will continue to remain unsettled on whether interest can be recovered as a disbursement on a costs award. However, until a pronouncement from the highest court, or from an appellate court in the province in which recovery is sought, Plaintiffs are still open to seek and recover interest incurred on a litigation loan as a disbursement. An alternative argument, and perhaps a more successful argument, could be to seek recovery under tort principles as a “special damages” if the right facts are present.
Please refer to the relevant tabs for more province-related information.