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Plaintiffs Cannot Recover Interest Paid To Finance Disbursements

The Court of Appeal in MacKenzie v Rogalasky 2014 BCCA 446 has found that successful plaintiffs cannot recover, as a disbursement, interest paid to finance other disbursements. This has been a hot-button issue in British Columbia for years, particularly in personal injury litigation. The Supreme Court of BC has recently allowed recovery of such interest at 6% (see Arnason v Nerio). Plaintiffs claim disbursements such as long distance charges, photocopying, fees paid to experts and the cost of obtaining medical records. In complicated litigation disbursements can exceed $100,000.

Plaintiffs who are successful at trial are usually awarded costs and disbursements in addition to the amount of the judgment. Settlements are often reached on an amount of damages, plus costs and disbursements. In both cases, the amount of the disbursements can be controversial, and the parties argue about whether a claimed disbursement is necessary or proper, or excessive, and sometimes even about whether a claimed item is even a disbursement at all. If the parties cannot agree, they must go to court for an assessment, which is like a second mini-lawsuit.

In MacKenzie v Rogalasky, the Court of Appeal held that interest incurred by a plaintiff, who chose to, or had to, fund disbursements by borrowing money, is not itself a recoverable disbursement. In this case, the court was looking at two motor vehicle accident plaintiffs who wanted to be paid by the defendants for the interest they were charged by lenders who lent them money they used to pay for the disbursements in their respective lawsuits.

At common law, litigants were not entitled to recover either their costs or disbursements, or interest on any expenses incurred before trial, even for lost wages. The entitlement to costs and interest are creatures of statute. These statutes are important because they define what a disbursement is, and define what interest is payable by another party to the litigation.

The Court of Appeal decided against allowing recovery of interest paid to finance disbursements for two main reasons:

1. The law which allows a party to collect pre-judgment interest in limited situations does not include disbursements; and

2. Interest on disbursements is too removed from the matters in issue in the litigation to fall within the definition of disbursement, which is an expense “incurred in the conduct of the proceeding.”

In coming to these conclusions, the Court of Appeal was concerned with three practical problems that would arise if interest on disbursements was a claimable disbursement:

1. It does not make sense that a plaintiff who borrows to fund litigation should recover interest, but another plaintiff who funds litigation with their own funds that could otherwise be invested cannot recover his opportunity cost.

2. Indemnification and predictability are both important purposes of an award of costs and disbursements. Plaintiffs will almost never get fully indemnified. Cost awards should be predictable and should depend on the case itself, not the circumstances of any one party.

3. Defendants should not have to pay the risk premium charged by the lender to the plaintiff. The high interest rate charged by lenders to fund litigation, which recognizes that plaintiffs might lose and might not be able to pay back the loan, is called a risk premium. The purpose of the risk premium is to ensure that the lender can still make a profit if some plaintiffs are unsuccessful and cannot repay any of the money lent or the interest charged. The court found it would be unfair for an unsuccessful defendant to have the risk premium passed on to them.

The rules about interest change after there has been a judgment, when post-judgment interest can be claimed. Interest on a judgment, including costs and disbursements, is generally allowed from the time of judgment until payment.

Case summary by: Christopher H. McDougall