Court File and Parties

COURT OF APPEAL FOR ONTARIO DATE: 20240229 DOCKET: COA-23-CV-0842

Tulloch C.J.O., Hourigan and Zarnett JJ.A.

BETWEEN

Rudolf Steinberg, Jakob Steinberg and Amanda Steinberg, Minors by their Litigation Guardian, Rudolf Steinberg Plaintiffs (Respondents)

and

Pamela Adderley Defendant (Respondent)

and

Bridgepoint Financial Services Limited Partnership 1 Non-Party (Appellant)

Counsel: Ruby Egit and Halla Ahmed, for the appellant BridgePoint Financial Services Limited Partnership 1 Mark Stoiko, for the respondents Rudolf Steinberg, Jakob Steinberg and Amanda Steinberg, minors by their Litigation Guardian, Rudolf Steinberg Rosalyn Skiffington, for the respondent Pamela Adderley

Heard: February 22, 2024

On appeal from the order of Justice Bonnie R. Warkentin of the Superior Court of Justice, dated June 30, 2023, with reasons reported at 2023 ONSC 3900.

Reasons for Decision

Introduction

[1] At the conclusion of argument, we allowed the appeal from the aspect of the motion judge’s order that reduced the interest payable to the appellant under certain litigation loans, with reasons to follow. These are those reasons.

Background

[2] The respondent, Rudolf Steinberg, was injured while a passenger in a motor vehicle involved in an accident in October 2011. He pursued claims as a result, including seeking statutory accident benefits and commencing a tort action against the respondent, Pamela Adderley, who was the driver of the vehicle.

[3] In 2013 and 2014, on the advice of his then legal counsel, Mr. Steinberg obtained five loans, totalling $65,500, from the appellant, BridgePoint Financial Services Limited Partnership 1 (“BridgePoint”). The loans were to fund expenses while Mr. Steinberg litigated claims arising out of the accident. The loans bore compound interest at rates between 20% and 24%.

[4] The motion judge found that the loans were not contingent on success in the litigation, but that BridgePoint was given a security interest in any settlement funds. She also found that:

With each of the five loans, Mr. Steinberg signed an Irrevocable Authorization and Direction that required any new counsel to be bound by the provisions of the loan agreement for the balance owing on the loans together with any accrued interest. The debt was to be paid from settlement proceeds from the motor vehicle litigation. With loans four (May 9, 2014) and five (December 10, 2014), Mr. Steinberg was provided a summary of projected amounts owing on the loans including accrued interest over a two-year period and was required to sign an acknowledgement confirming the future loan balance should it not be repaid within the two years.

The Motion and the Decision Below

[5] In July 2022 and June 2023, the motion judge heard a motion brought by Mr. Steinberg concerning the amount of interest owing to BridgePoint. By June of 2023, Mr. Steinberg had: (i) settled his accident benefits claim for $1.25 million [1]; (ii) paid BridgePoint $70,000 [2]; and (iii) not received anything from the tort action he brought. The tort action was dismissed in September 2022 after Mr. Steinberg was found in contempt of an order to attend a medical examination, and an appeal to this court was pending when the motion judge released her reasons. [3]

[6] According to the loan documents, as of June 5, 2023, Mr. Steinberg owed BridgePoint $312,936.18 (after credit for the $70,000 paid in May 2022), with interest continuing to accrue. Mr. Steinberg’s position before the motion judge was that BridgePoint’s interest should be capped at 1.5 times the principal borrowed and that any additional interest charges were unconscionable. He relied on the Unconscionable Transactions Relief Act, R.S.O. 1990, c. U.2 (“UTRA”). Section 2 of UTRA allows a court to set aside loan agreements, in whole or in part, if the cost of the loan is excessive and the transaction is harsh and unconscionable.

[7] The motion judge rejected the contention that the interest on the loans was unconscionable. She said:

I find that the litigation loans are contractually sound. Mr. Steinberg cannot now claim that the interest rate is unconscionable in light of the legal advice he received when obtaining the loans and based upon his signed acknowledgment on two different occasions where he acknowledged the quantum of interest that would accrue with time.

[8] She also noted that it was Mr. Steinberg’s failure to move the litigation expeditiously that contributed to the interest that was owing:

I also find that it was Mr. Steinberg’s conduct in refusing to advance this litigation that has exacerbated the accrual of interest.

But for Mr. Steinberg’s conduct, the interest on the loans would have been significantly lower had this action proceeded to trial in 2018 or had he complied with subsequent court orders. It is also probable that the action would have resolved after 2018, either by trial or resolution had Mr. Steinberg abided by the court orders to attend defence medical examinations.

[9] However, the motion judge was still “prepared to provide a modest amount of relief to Mr. Steinberg due to delay that happened because of the COVID-19 pandemic”, which she considered “legitimate delay”. She found that delay to be about 1.5 years, and $75,000 to be the approximate amount of interest that accrued during that period of time. She found the BridgePoint loans and accrued interest were payable by Mr. Steinberg, reduced by $75,000.

Analysis

[10] On appeal, BridgePoint challenges the reduction of interest. We agree that the reduction cannot stand.

[11] Once the motion judge found that the loan transactions were not unconscionable, there was no basis to vary the interest owing. UTRA, which was the only basis upon which Mr. Steinberg relied on the motion, does not give the court the power to vary interest charges without a finding that the transaction is “harsh and unconscionable”.

[12] Mr. Steinberg argued, on appeal, that the reduction could be justified based on the equitable doctrine of unconscionability described in Uber Technologies Inc. v. Heller, 2020 SCC 16, [2020] S.C.R. 118. Leaving aside the issue of how that doctrine applies to loan agreements, which are the subject of a specific statutory regime in UTRA, there are two problems with this argument. First, that was not the basis on which Mr. Steinberg brought his motion. Second, the doctrine requires a finding of unconscionability, which the motion judge did not make. Her finding that the transactions were not unconscionable, because Mr. Steinberg had independent legal representation and signed acknowledgments confirming his understanding of how interest would accrue, was supported by the record and is entitled to deference in this court. [4]

[13] Delay in the litigation due to COVID-19 could not be an independent basis to reduce interest owing under loan agreements that had been found by the motion judge to be “contractually sound”. The loan agreements called for interest to continue until the loans were paid – they thus allocated the risk of delay in reaching a resolution of the litigation that would provide a source of repayment to Mr. Steinberg. Allowing delay in the litigation due to COVID-19, even if in one sense “legitimate delay”, to justify a reduction of contractual interest simply rewrites the loan agreements. Courts are not generally empowered to rewrite contracts or relieve parties against the consequences of an improvident bargain: Pacific National Investments Ltd. v. Victoria (City), 2004 SCC 75, [2004] 3 S.C.R. 575, at para. 31.

[14] In any event, we accept the argument of BridgePoint that it was procedurally unfair for the motion judge to rely on this argument as the basis for her decision, when it was not asserted by Mr. Steinberg. Although the motion judge, on her own, raised in argument the relevance of COVID-19, she advised counsel that she would at most make an an obiter comment about it, and it would not be part of her decision. Unfortunately, she appears to have lost sight of this comment. [5] This deprived counsel of the opportunity to fully address the issue.

Disposition

[15] For these reasons, the appeal is allowed, and para. 2 of the motion judge’s order is set aside.

[16] As agreed by the parties, Mr. Steinberg shall pay costs of the appeal to BridgePoint in the all-inclusive sum of $15,000.

“M. Tulloch C.J.O.”

“C.W. Hourigan J.A.”

“B. Zarnett J.A.”

[1] In March 2022. [2] In May 2022. [3] The appeal was dismissed on November 2, 2023: Steinberg v. Adderley, 2023 ONCA 725. Counsel advise that leave to appeal to the Supreme Court of Canada is being sought. [4] Mr. Steinberg relied on two cases in which a court disallowed interest on litigation loans: Grys v. Narbutt, 2016 ONSC 2594, and Rhino Legal Finance Inc. v. Pappas, 2019 ABQB 525, [2019] A.W.L.D. 3006. In both cases, findings of unconscionability were made. [5] The motion judge stated: “From early in the pandemic, BridgePoint was willing to entertain a reduction in the interest payable on the loans due to the pandemic, but Mr. Steinberg has refused to consider any payment other than what he has already made. BridgePoint has asked me to fix the amount of that reduction” (emphasis added). Counsel for BridgePoint argued that the motion judge was mistaken in her view that any such request was made, and we were not pointed to anything in the record that supported the motion judge’s statement.