Claiming Interest Incurred on Loans
Introduction
When injured through the negligent actions of someone else, a victim is entitled to claim compensation. Indemnification can take various forms and cover a variety of harms, including pain and suffering, loss of income, medical expenses, etc. While certain types of damages are in the form of money not received, thus compensating a negative (i.e. for something that did not happen), others relate to additional expenses incurred, compensating a positive (i.e. for something that did happen). Both scenarios present an opportunity cost, or the loss of the use of money that should but was never received or disbursed for items that would not have been purchased otherwise. Tort law will generally compensate both types of losses.
In the abstract, the principles of tort law are fine. The victim will get full compensation and put back as closely as possible to where he or she would have been but for the tortious act. However, that often neglects the particular circumstances of the person who has to undergo the ordeal of an injury. Assuming that everyone had sufficient means to survive on no income and additional expenses until such a time as a court of law would award a full compensation, then real life would typically match the ideal world. However, that is often not the case.
The truth of the matter is that oftentimes, when a person is injured in an accident and he or she can no longer sustain work, plus has to incur additional expenses, the tangible effect of the trauma can precipitate a financial crisis on someone who was barely making ends meet previously. The consequences can be inescapable for those who may have to wait several years before getting a remedy. The only option available to those victims may be to incur further expenses, in the form of loans accruing interests, in order to survive until he or she is put back in the position that he or she should have been but for the wrongdoing. The inevitable question is whether it is possible to claim the interests incurred on a loan contracted for the purpose of weathering a storm created by a negligent action.
The case law in New Brunswick to date offers three scenarios under which damages can be awarded to compensate interest accrued on a loan contracted to cover expenses incurred as a result of a tortious act. The first scenario relates to loans obtained to pay specific expenses associated with the injury. The second derives from s. 45 of the Judicature Act, RSNB 1973, c. J-2, and involves a wide discretionary power on the trial judge. Finally, the last one arises in the context of litigation loans when dealing with disbursements engaged in the pursuit of a claim in court. Each one is discussed in turn.
Interest as a Separate Claim
Under certain circumstances, it is possible, in New Brunswick, to claim from the tortfeasor, as a separate head of damages, the interest paid on a loan contracted to cover expenses incurred as a result of the negligent act. Like all the other heads of damages, this claim will be allowed when the evidence shows that the loan was rendered necessary by the wrongdoing and contracted to pay expenses related thereto instead of general costs of living.
A case where a claim for reimbursement of interest paid on a loan was allowed is Bustin v. Kelly (1986), 70 NBR (2d) 156 paras 83-86 (QB). The plaintiff had sustained severe injuries in a car accident; he became paraplegic. A loan was contracted to cover the costs of a car adapted to the claimant’s situation, as well as to make renovations to the home to ensure wheelchair access. Few details are provided regarding the nature of the loan, except that it was contracted by the father who in turn charged the interest to the plaintiff. Part of the cost of the car ($7,500) and the home renovations ($36,638) were compensated under separate heads of damages (paras 56,63, 64-73 & 104). Thus, the plaintiff was indemnified for both the expenses incurred (car & home renovations) plus the opportunity costs (interest) associated with the money disbursed to cover those expenses. The total value of the interest awarded came to $9,216.
The case of Caron v. Steeves, 2000 CanLII 1959 (NBQB), is similar in effect. The plaintiff claimed the interest paid on a line of credit. The trial judge does not discuss the nature or the use made of the loan, other than the claimant had to borrow the money as she was unemployed and the interest were legitimate expenses (“a dû emprunter des fonds parce qu’elle ne travaillait pas et les intérêts sont des dépenses légitimes”). It may be worth noting that the amount involved was low (i.e. $843.61).
However, it should be noted that when such a claim is allowed, the trial judge will usually exclude that special damage from an award of interest under s. 45 of the Judicature Act, supra: see Bustin, supra para 133; Caron, supra. Otherwise, the defendant would pay interest twice and the plaintiff would be overcompensated for the opportunity cost associated with the original loan, as the interest awarded already covers the use of the money until the time of the trial.
Interest on Special Damages
Section 45 of the Judicature Act, supra, confers a discretion on a trial judge to compensate the loss of use of money from the date of an accident until the award is made: John Maryon International Ltd v. New Brunswick Telephone Co. (1982), 43 NBR (2d) 469 paras 63-66 & 125 (CA). In LeClerc v. Sunbury Transport Ltd (1996), 184 NBR (2d) 1 paras 46-47, the New Brunswick Court of Appeal defined broadly that power:
[46] An award of interest involves the exercise of judicial discretion. Section 45(1) of the Act, enables a judge to select and apply an interest rate to all or part of the damage award for any period of time between when the cause of action arose and the date of the judgment. In many cases that discretion is exercised without accompanying reasons.
[47] The purpose of awarding prejudgment interest is to put the claimant in a position that eliminates loss so far as money can produce the result. This court will only interfere with a trial judge’s exercise of discretion, when awarding interest, if there has been an obvious error.
See also M.R. v. G.M., 2016 NBCA 33 paras 8-9 & 13-14. Compared to the legislative provisions found in other provinces, New Brunswick’s judicial discretion is free from all kinds of encumbrances, limitations and restrictions: see M.B. v. British Columbia, 2003 SCC 53 paras 44-51 (Court Order Interest Act, RSBC 1996, c. 79); Mann v. Jefferson, 2019 ONSC 422 para 43 (Courts of Justice Act, RSO 1990, c. C-43, ss. 127-128).
In Matthews v. McIntyre, 2019 NBQB 127, the trial judge was faced with the situation of a plaintiff who had incurred high-interest loans in part to cover the medical expenses associated with her injuries. In his award of special damages, he calculated the medical expenses incurred between the date of the end of the claimant’s Section B medical coverage and the date of the trial. When selecting and applying an interest rate pursuant to s. 45 of the Judicature Act, supra, he considered the interest rate paid on the high-interest loans and chose a rate at half its value, amounting to about 16% yearly. That interest rate was in stark contrast to the 2% yearly applied to the other special damages. Thus, although the presiding justice did not award the full amount of interest paid on the loan, he chose a rate informed by the high-interest loans. That decision was upheld by a unanimous bench of the New Brunswick Court of Appeal: 2020 NBCA 52 paras 38-50. It is worth mentioning that the appeal court emphasized that the medical expenses were found to be reasonable, and the plaintiff had limited financial means to cover the added expenditures (paras 43-44).
Most cases have dealt with interest when money is owed and not paid (i.e. negative), while Matthews v. McIntyre, supra, deal with interest in a case where specific expenses are incurred (i.e. positive). Where such expenditures are engaged as a result of the accident and a claimant had to borrow funds to cover them, the New Brunswick Court of Appeal confirmed that a trial judge is justified to look at the rate of interest charged on the loan to set the rate of interest pursuant to s. 45 of the Judicature Act, supra.
In light of Justice Richard’s decision in Stamper v. Finnigan (1986), 75 NBR (2d) 301 (QB), this approach to interest may be of particular value when the policy limit is insufficient to cover the entire loss. Although overturned on other grounds [(1987), 81 NBR (2d) 213 (CA)], and not followed in other jurisdictions, Justice Richard held that insurers are liable up to the value of the policy limit plus applicable pre-judgment interest pursuant to s. 45 of the Judicature Act, supra. As in Stamper, supra, ss. 243(1) and (3) of the Insurance Act, RSNB 1973, c. I-12, remain unchanged in this respect, and the minimal policy limit of $200k is “exclusive of interest and costs”. Depending on the applicable rate of interest, the policy limit would obviously expand accordingly.
Interest as a Disbursement
Access to justice is an issue that has been frequently raised in the recent past: see British Columbia (Minister of Forests) v. Okanagan Indian Band, 2003 SCC 71; British Columbia (AG) v. Christie, 2007 SCC 21; R. v. Caron, 2011 SCC 5. Among other things, the high costs of bringing an action to court is blamed for the inability of plaintiffs to pursue their claims. In special types of public interest cases, courts have even ordered governments to pay in advance some disbursements to alleviate the burden on a private litigant who brings important issues to justice. However, in personal injury cases, involving two private parties, such orders would not likely be made. A plaintiff is thus constrained to the usual rules of costs and disbursements, after being at least partly successful, in order to have the defendant contribute to the expenses of pursuing the action.
In New Brunswick, Rule 59 of the Rules of Court provides for the applicable costs and disbursements. Unless ordered otherwise, a party entitled to costs is also entitled to disbursements: Rule 59.08(8). The Tariff ‘D’ defines the disbursements that can be claimed, including “all other reasonable expenses necessarily incurred”: Rule 59, Tariff ‘D’, clause 2(14). In LeBlanc v. Doucet, 2012 NBCA 88, the New Brunswick Court of Appeal addressed whether that provision extended to interest on loans contracted to cover litigation costs.
In LeBlanc, the evidence showed that the plaintiff, injured in a motorcycle accident, had limited financial means to bring the action to court. He was 17 at the time of the accident, and still in high school. He was receiving less than the full allowable amount of Section B disability benefits. The defendants denied liability. Two financial institutions had already refused a line of credit to help finance the litigation. Only after did the plaintiff turn to and obtain a high-interest loan to help cover the costs of the action. The unanimous bench allowed the interest paid on the loan as a disbursement both necessary and reasonable in those circumstances. The total amount involved was over $12,000. See also Bourgoin v. Ouellette (2009), 343 NBR (2d) 58 paras 46-64 (QB Clerk), which involved the same counsel as in LeBlanc but an amount of interest lower than $5,000.
This paper is offered for the purpose of discussion only. It does not constitute legal advice and its distribution does not create a solicitor-client relationship. Please consult a lawyer if you require legal advice.