Depending on the nature of a personal injury claim, settling with the defendants or obtaining a court judgment can take years. For some victims, waiting for their claim to resolve can have profound financial effects – particularly if they are unable to work due to their accident-related injuries. In extreme cases, victims may need to obtain “litigation loans” to help stay afloat during this uncertain time. However, as a recent case shows, there can be serious implications if litigation loans are not appropriately disclosed. Before considering such a loan, be sure to consult with an experienced personal injury lawyer to determine whether this route is the appropriate one for you and, if so, to ensure that proper procedures are followed.

A $500,000 Litigation Loan – But Who Pays the Costs? 

Davies v. The Corporation of the Municipality of Clarington, 2021 ONSC 6449 arose from a VIA Rail train derailment in November of 1999 which resulted in injuries to over 100 passengers. The resulting class-action took nearly two decades to resolve. The last class member, Christopher Zuber, was involved in a 100+ day trial to determine his damages award. 

Since the defendants beat their formal offer to settle, Mr. Zuber was required to pay their “costs” for the litigation. However, Mr. Zuber resided in Poland and had no connection to Ontario – as a result, the defendants did not expect to recover costs from him. Instead, they sought to recover their costs from the litigation loan providers who had provided loans to Mr. Zuber during the course of the proceedings. 

Mr. Zuber had been given loans in excess of $500,000 with fixed annual rates of interest ranging between 18% and 29%, some of which included a clause that allowed for interest to be compounded monthly. 

The defendants argued that the litigation loan providers should be responsible for the defendants’ costs for the following reasons: 

  1. Mr. Zuber’s litigation loan providers had not received court approval in accordance with s. 33.1(2) of the Class Proceedings Act, which provides that third-party funding agreements are subject to the approval of the court; 
  2. The court had jurisdiction to award costs against non-parties; 
  3. The litigation loans impacted how the litigation unfolded (Mr. Zuber made decisions about whether to settle because he needed to repay the loans, and not based on what his claim was worth); 
  4. The litigation loan agreements were “abusive and champertous”

The court declined to make costs award against the litigation loan providers because their conduct did not amount to an abuse of process. However, what is perhaps more interesting was the court’s reasons (in obiter – which refers to the judge’s comments or observations that are not part of the judgment) regarding the future of costs awards for litigation loans. 

What This Decision Means for Personal Injury Claimants Considering Litigation Loans 

Noting that this case was a ‘test case’ that involved novel arguments that this, and other courts, will have to deal with now and in the future”, the court provided some observations that will undoubtedly impact the treatment of litigation loans in future costs assessments, as follows: 

  • if a plaintiff intends to recoup the accrued interest on a litigation loan as a disbursement, the plaintiff must disclose the details of the litigation loan to the defence;
  • litigation loan documents are likely privileged but should be listed in Schedule B (Privileged) of a plaintiff’s affidavit of documents to alert the defence to the existence of the litigation loan.

The points above will be addressed by the plaintiff’s lawyer. However, the court also provided the following guidance for plaintiffs: 

  • a plaintiff needing the assistance of a litigation loan should consider any and all other methods of funding the costs of a disbursement before committing to the onerous interests costs involved with the litigation loans;
  • plaintiffs should obtain independent legal advice before obtaining a litigation loan – they should not simply rely on the advice of their lawyer. 

Experienced Personal Injury Lawyers Serving Eastern Ontario and North Bay

While a litigation loan may be tempting, especially when you are suffering financially following an accident, the case discussed above demonstrates that such loans should not be taken lightly. Speak with an experienced personal injury lawyer regarding your claim to ensure you find a strategy that works for you – whether it be your litigation plan or assistance in making decisions about supporting yourself throughout the litigation phase. 

You shouldn’t feel as if you’re stuck having to fight for your rights alone, especially when you’re in the midst of recovery. Let the lawyers at Tierney Stauffer LLP consult with you on the case at hand, develop a strategy best suited for your particular circumstances, and use our decades of legal experience to help you find the best possible outcome. 

Our lawyers recognize that no two injury claims are the same, which is why we give each claim the personalized attention needed to protect your rights and bring about the best possible outcome. Call us at 1-888-799-8057 or contact us online to set up a free consultation with one of our skilled personal injury lawyers


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