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6% Interest Allowed on Plaintiff’s Loan from Lawyer

Cautionary Note:
In November 2014 the British Columbia Court of Appeal ruled that no interest is payable on litigation financing (see MacKenzie v Rogalasky).  Although the BCCA does not directly overrule Arnason, it is now the authority on this issue.

In Arnason v Nerio 2014 BCSC 185 the plaintiff was injured in a motor vehicle accident. He alleged PTSD and a chronic pain disorder. The plaintiff was in an uncertain financial state before the accident and was unable to work after. The parties settled, but the defendant took issue with some of the plaintiff’s disbursements, including the plaintiff’s claim for 15% interest on a loan from his law firm for litigation expenses.

In allowing the claim for the interest, Master Young followed recent decisions and found the disbursement both “necessary” and, to an extent, “reasonable”. The disbursement was necessary as the disbursements in this case were extensive and the plaintiff would not have been able to fund them. However, the rate of 15% was excessive and a cost the defendant should not have to bear. Instead, Master Young allowed a rate of 6%, while leaving the possibility for a higher rate in other circumstances.

With the recent trend of plaintiffs obtaining loans to fund litigation expenses one must budget for such a claim when considering settlement, or ensure that any offer to settle which includes costs and disbursements specifically precludes paying interest on disbursements. It is not uncommon for large disbursements to be incurred even in modest claims.

Case summary prepared by: Brian Hoffman