A recent decision from the Ontario Court of Appeal, Davies v. Clarington (Municipality), 2023 ONCA 376, revolves around an action characterized as “a poster child for what our civil justice system can no longer accommodate” and considers whether a plaintiff’s lenders are liable to pay costs to the defendants in a lawsuit that was financed by their loans.
Background
Christopher Zuber, the only remaining class member in a lawsuit related to a 1999 train derailment, sought $50 million for his claim. All other members of the class settled by 2007. Mr. Zuber borrowed to finance the lengthy litigation. The total principal amount of these loans exceeded $400,000, with interest rates ranging from 15% to 29% and compounding monthly. Mr. Zuber declined an offer of $500,000 before the trial and ultimately was awarded only $50,000 in general damages after a trial that spanned 106 days.
In his costs submissions, Mr. Zuber sought to recover the interest incurred on the loans, which amounted to over $2.9 million by December 2018. The trial judge rejected this submission and awarded more than $3.4 million in costs to the defendants. The defendants then sought an order declaring the lenders liable to pay these costs, as it was assumed they would be unable to collect from Mr. Zuber.
In declining to hold the lenders liable, the trial judge recognized the two bases on which a court could order costs against a non-party, citing 1318847 Ontario Ltd. v. Laval Tool & Mould Ltd.[1] (“Laval Tool”). The first is the court’s statutory jurisdiction pursuant to section 131 of the Courts of Justice Act while the second arises from a superior court’s inherent jurisdiction to prevent abuse of process. Although the trial judge found that the loans had onerous interest rates and did not promote the goal of access to justice, he declined to award costs against the lenders. The trial judge concluded that neither of the two grounds for ordering costs against a non-party were applicable in this case.
Grounds for Appeal
The defendants appealed, focusing on the second basis for ordering costs against a non-party. They argued that the trial judge erred in incorrectly interpreting Laval Tool when deciding whether the lenders had engaged in an abuse of process. Further, the defendants alleged that the trial judge failed to conduct an analysis of champerty and maintenance.
Analysis
Abuse of Process
The Court of Appeal held that the trial judge did not err in his analysis of whether the lenders’ conduct amounted to an abuse of process. The trial judge disagreed with the position taken by the defendants, namely that the lenders’ decision to provide loans with unlimited compound interest had such a significant impact on Mr. Zuber and his legal representation that it should be considered as actively “conducting” the litigation, as defined in Laval Tool. The court reasoned that merely providing loan proceeds for unsuccessful litigation should not make the lenders liable for costs unless they exercised control over the litigation, which in this case, they did not.
The argument that the accrual of interest was an impediment to settlement amounting to an abuse of process was also rejected. The lenders did not cause Mr. Zuber to refuse the settlement offers. Moreover, the lenders did not act together, and the prolonged trial was primarily a result of Mr. Zuber’s conduct, not the lenders.
The defendants’ third point concerning court approval of the loans was also dismissed. The appellate court agreed with the trial judge that the absence of court approval for a third-party funding agreement did not automatically imply that the actions of the lenders constituted abuse of the legal process.
The Court of Appeal found that the trial judge did not err in applying Laval Tool and that the lenders did not instigate or conduct Mr. Zuber’s litigation in an abusive manner.
Champerty and Maintenance
The second ground advanced by the defendants was that the trial judge failed to consider the possibility of champerty and maintenance by the lenders, which could justify awarding costs against them as non-parties. Champerty and maintenance are related legal doctrines that prohibit the provision of financial or other support to a party in a lawsuit for a share of the proceeds obtained from the litigation without any justifiable interest for doing so.
With respect to this argument, the appellate court found that the trial judge carefully considered the terms of the loans, noting that the lenders did not receive a share of the proceeds, had no control over the litigation and did not instigate Mr. Zuber’s claims. The Court also affirmed that Laval Tool offered adequate guidance for deciding this case, and recent legal developments in England and Wales regarding the liability of litigation lenders were inapplicable.
Conclusion
In dismissing the appeal, the Court of Appeal emphasized that costs are discretionary, and the circumstances for ordering a non-party to pay costs are limited to the specific purpose of penalizing those who initiate or conduct litigation in a manner that abuses the court’s process, which did not apply to the lenders in this case.
This case underscores the need for considering the impact of litigation loans on access to justice and potential cost liability of lenders. Both the lower court and the Court of Appeal criticized the interest accrued on Mr. Zuber’s loans as unconscionable and raised questions about the effectiveness of litigation loans in advancing justice. They also highlighted the importance of seeking independent advice and evaluating alternatives when considering such loans.
[1] 2017 ONCA 184.