ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 5514/12- SR

DATE: July 22, 2015

BETWEEN:

Valerie Gnys carrying on business as Health Services Recovery Network

Plaintiff

– and –

Marta Narbutt

Defendant

Shawn Knights, for the Plaintiff

Margaret Hoy, for the Defendant

HEARD: June 26,2015

THE HONOURABLE MR. jUSTICE R. J. NIGHTINGALE

[1] The Plaintiff brings this motion for summary judgment for recovery of three litigation loans provided by her to the Defendant in 2008 and early 2009 of $10,000, $2500 and $1000 totaling $13,500.

[2] Although the Defendant admits she has not repaid two of the loans totalling $11,000 despite receiving approximately $306,000 in 2011 for personal injury damages as a result of a 2004 motor vehicle accident, she now concedes her responsibility to repay the principal amount of those two loans. However, she objects to paying the stipulated interest rate on the loans of 18% compounded monthly which is an effective annual rate of 19.5%. She suggests interest should only be payable at slightly more than the bank prime rate of 4%.

[3] The Defendant states that the third loan of $2500 was effectively repaid on settlement and payment of her former lawyer’s account in May 2013.

[4] The defences raised are breach of fiduciary duty and breach of contract, failure to disclose that the plaintiff was the spouse of her lawyer at the time of the loans, failure to recommend independent legal advice, an unconscionable transaction and “questionable repayment of the loan”.

[5] The Plaintiff provided her own affidavit and that of Timothy Beresh with respect to the advancement of the loans and numerous supporting documents. The Defendant provided her own affidavit and numerous documents.

[6] The parties have conducted lengthy examinations for discovery in October 2014 and cross examinations on their affidavits filed for this motion in March 2015. Transcripts were provided and referred to. Affidavits of documents have been exchanged and additional documents were referred to by the parties on consent.

[7] As indicated, the Defendant has now admitted her obligation to repay the principal amount of two of the three loans. The Plaintiff and the Defendant’s lawyer Ashley Gnys have admitted that they did not advise the Defendant of their potential conflict of interest at the time of making the loans and did not disclose that the Plaintiff, the lawyer’s wife, was providing the litigation loans . It appears that almost all the material facts are not in dispute on the record of evidence before me.

[8] Given those admissions, there are really only two factual issues; firstly, whether the Defendant received a full explanation of when the loan interest commenced and that it was calculated on a compounded basis and secondly, whether the settlement of the law firm’s account included a payment of the $2500 loan.

[9] For the following reasons and given the amount in dispute and the protracted litigation to date, I am confident I am able to find the necessary facts, apply the law to those facts so to resolve the dispute on the merits using this summary judgment process that is proportionate, more expeditious and less expensive than a trial. Hyrniak v. Mauldin 2014 SCC 7.

Factual Background

[10] The following facts are not in dispute. In October 2004, the 17-year-old Defendant through her litigation guardian retained Ashley Gnys of the Sharpe Beresh and Gnys law firm to represent her with regards to her claims for compensation because of her physical and psychological injuries sustained in a motor vehicle accident on September 12, 2004.

[11] The Defendant had no money for a retainer and her litigation guardian signed a contingency fee agreement with the law firm confirming their right to payment of their legal fees of 1/3 of the recovery with the Defendant receiving credit for costs paid by the responsible party. The agreement provided that the Defendant was to be responsible for the law firm’s incurred disbursements regardless of the results of her case.

Plaintiff’s Evidence

Tim Beresh

[12] The evidence of Tim Beresh in his affidavit and cross-examination thereon is both clear and concise and amply corroborated by the supporting documents.

[13] He was a former bank manager working independently for the Gnys law firm doing administrative and personal injury clerk work in 2008. He admitted he had a duty of utmost good faith toward the clients of the firm. He had met with the Defendant to work on her file before July 2008.

[14] He stated the Defendant came into the office in July 2008 and after she spoke to the lawyer Ashley Gnys, he then had a brief conversation with her about her request for a $10,000 litigation loan for her personal expenses. His personal notes confirm that conversation took place on July 8, 2008 and that she told him she needed the money to pay off debts and buy a car. He gave her a brochure from a litigation lender Parapet or another lender which included a package of litigation loan application documents in blank for her review. He remembers telling her to decide whether she wanted to go through with the loan after she reviewed the documents.

[15] A few days later, he was subsequently told by Ashley Gnys that she had called and wanted to go ahead with the loan. He then met her in the evening of July 17, 2008 for approximately 45 minutes after having already prepared the loan documents from Health Services Recovery Network (“HSRN”) in advance of that meeting.

[16] He was concerned about her boyfriend or her father getting the money. She told him she wanted a loan of $10,000 to buy a car and pay off credit cards and some debts. He was satisfied after talking to her that she would be in charge of the funds.

[17] He first provided and reviewed with her a letter on the law firm’s letterhead that he signed that clearly provided her in summary form with the information of the cost of borrowing the money from HSRN being “18% compounded monthly which is about 19.5% annually” and “you begin to pay interest when you draw from your loan”.

[18] He presented her with a four-page brochure and application form from Parapet (Lexfund), a leading litigation loan company, and explained to her that they offered an annual loan interest rate of 19.5% calculated monthly or an effective annual interest rate of 21.34%. He also correctly told her that other litigation lenders charged annual interest of between 25% to 29% for litigation loans.

[19] He told her that the only way she would have to repay the loan was if she lost the case. The loan with interest was to be repaid as first priority upon settlement or adjudication of her claim.

[20] The Defendant agreed to take the loan from HSRN. He then reviewed each HSRN loan document with her one at a time including the terms of loan application, assignment of the proceeds of the loan, the security provided of the litigation settlement, the default consequences and her repayment obligations if she walked away from her court case. He read each document as it was presented in such a way as to get beyond the legalese of the document so that she understood. He told her to take her time to review them after which she initialed each page and signed it and he did as well. He said he was meticulous in what he did and how he did it as he comes from a credit background as a former bank manager.

[21] He said the Defendant acknowledged she understood and accepted each provision of each loan document when he explained it to her.

[22] In particular, he reviewed with her the HSRN loan application form which clearly confirmed the annual loan rate of 18% calculated and compounded monthly and also told her that the actual annual interest rate was 19.5% and commencing the date the loan was advanced which was also clearly disclosed in the forms. He advised her right at the outset that the interest rate charged was high explaining that they were credit card interest rates.

[23] He reviewed the underwriting fees for the loan and explanatory notes on the next page which she then initialed confirming that the results of compounding meant that the effective annual interest rate was 19.5%.

[24] He provided her with a cheque for the $10,000 loan payable on the law firm’s account after she signed all the loan documents. The cheque had already been prepared by him for her as she stated before that second meeting that she wanted the money.

[25] In cross-examination, he admitted he did not advise her not to enter the agreement as it was her choice.

[26] Mr. Beresh did not advise her to approach the banks first for a loan nor did he approach one. He knew with his experience that she would not have been able to obtain a loan from a bank. It would have been futile and a waste of energy as the banks would simply not approve it given her financial circumstances and for the purpose that she wanted. To say the least, that only makes common sense and is perfectly understandable given her poor financial situation described below in her evidence.

[27] He did not suggest payday loans to her as they were not available at that time.

[28] He acknowledged he did not make a request for an advance payment from the insurer for the tort defendant to cover these requested personal expenses.

[29] He also acknowledged that he did not tell the Defendant that HSRN was actually owned by Valerie Gnys, the spouse of the Defendant’s lawyer, and did not tell her to get independent legal advice before she signed. He did not see it as a conflict of interest or a need to disclose that and felt that if the Defendant had known the lawyer’s wife was involved, if she needed more money in the future, it was a possibility of her “squeezing” the lawyer to get more. However, he was satisfied that that wasn’t happening with this client.

[30] Mr. Beresh confirmed that the second litigation loan of $2500 by way of an advance on a $5000 line of credit on the same loan terms was made by the plaintiff in December 2008 to cover the law firm’s disbursement for an outstanding medical report.

[31] Mr. Beresh also confirmed that in February 2009 the Defendant asked for and received a further litigation loan of $1000 to cover her personal expenses which came from the same line of credit arranged in December 2008. The loan terms and 18% compounded rate of interest were the same.

Valerie Gnys

[32] The Plaintiff is married to Ashley Gnys, the Defendant’s former lawyer at the time of the loans. She worked part-time at the firm and had met the Defendant several times before this loan arrangement in July 2008. She set up HSRN in 2006.

[33] She personally did not meet with Defendant to discuss the litigation loans in 2008 but was informed by Mr. Beresh of the Defendant’s desire to acquire a $10,000 litigation loan for her personal living expenses. She approved the $10,000 loan application on July 16, 2008 and provided her cheque of $10,000 to the firm that they then provided to the Defendant when she signed the loan documents. She signed the documents the same day after the Defendant. She subsequently advanced loans to the defendant in the sum of $2500 in December 2008 for the medical report disbursement and $1000 in February 2009 for the defendant’s personal living expenses on the same terms.

[34] She did not disclose to the Defendant before or after 2008 that she had a litigation loan business and did meet with her to discuss the loans. She didn’t reveal to the Defendant that the loans came from her. She was not aware her husband may have had a conflict of interest in advancing a loan to the Defendant without disclosing the lender was her.

[35] She stated that in recognition that independent legal advice should have been offered and disclosure that she was the owner of HSRN should have been provided to the Defendant, she decided to waive any interest and a processing fee on this second loan advance of $2500 used to fund the medical report disbursement. According to her affidavit, the balance of the second loan advance remains at the original principal of $2500 with no applicable interest or processing fee.

[36] Counsel for the Plaintiff on the hearing confirmed that no interest would be claimed on that $2500 loan but after the hearing suggested that interest should be payable thereon at 5% from the date that Defendant received her settlement amount. However, based on the affidavit of Plaintiff it is not appropriate to now consider an award of interest on that loan.

Defendant’s Evidence

Marta Narbutt

[37] Regarding the initial $10,000 loan, the Defendant’s own evidence confirms that of Mr. Beresh that in July 2008 she was working at a call centre in training for only two or three months at minimum wage. She admitted she was in a difficult financial situation not making a lot of money and had bills to pay including her rent, groceries, cell phone bills and cable bills. Her lawyer advised her on her cross-examination not to disclose her actual 2008 income, suggesting it was not relevant.

[38] Her actual 2008 income was indeed most relevant since her counsel’s submission was that she should have been told by her lawyer then to apply for a bank loan instead of a litigation loan. The Defendant admitted she did not approach a bank for a loan and the reasonable inference is because she knew she couldn’t get one there given her poor financial circumstances, her minimal income and her substantial credit card debt. Moreover, unlike a litigation loan at higher rates, no bank would agree that any loan, if granted, would only be repayable with interest if she won her case and received settlement funds but not otherwise.

[39] The Defendant also stated on her examination for discovery that she wasn’t using her credit cards at the time and couldn’t remember how much she owed on those two cards then. She then denied that the debts on those cards totaled $5500 at the time.

[40] However, her credibility is significantly in issue as her lawyer conceded that her credit was terrible then and her credit cards were in fact maxed out at $5500 even though she had refused to produce the supporting credit card statements on her examination for discovery.

[41] In a meeting at her law firm in July 2008, the Defendant stated she saw a brochure of Health Services Recovery Network in the office of Tim Beresh advertising litigation loans. She stated she didn’t know what they were.

[42] According to her evidence on her examination for discovery, she stated she wanted $10,000 so that she could give it to her parents. Her father had asked her for money to pay off his debts and needed it to avoid foreclosure proceedings on their home. However, she admitted she didn’t tell Mr. Beresh that that was the reason for her loan request and also admitted that she may have told him that the reason for the loan was because she might want to buy a car for herself. She made no attempt to obtain a loan elsewhere. That confirms Mr. Beresh’s evidence.

[43] Contrary to her affidavit evidence that the application for a litigation loan was initiated by her lawyer, in fact she admitted on her examination for discovery that she was the one who asked Mr. Beresh for those details which also confirms his evidence.

[44] It is also noteworthy that on her cross examination she stated at one point she did not sit down with the lawyer or paralegal when she was signing any of the loan documents for the $10,000 loan. However, she clearly had met with Mr. Beresh regarding this loan who had been assisting her beforehand on her case and all of the loan documents bear her signature and initials as well as his.

[45] Mr. Beresh’s evidence is also more credible and reliable than hers when he stated he gave her sample litigation lender loan documentation to review for a few days before she returned to the office to sign the loan application documentation for the initial loan in July 2008.

[46] Although she stated at one point she was never provided with comparables from other litigation lenders, she also admitted on her examination that she was shown another brochure for comparison purposes from Lexfund Litigation Funding indicating HSRN was a better choice. She said she trusted her lawyer and went with HSRN for the loan based on the original HSRN brochure she was given.

[47] The Defendant made a clear but bald statement in her affidavit that she “was not told of the actual cost of borrowing the litigation loan, that I would be charged 18% monthly compounded interest on the money…”.

[48] That evidence is misleading at best. In her cross examination, she simply stated that she was not advised or explained what compound interest was even though it was listed in the loan documents she signed which indicated that the effective rate of interest was 19.5%. She did not deny that she was told from the outset that the annual interest-rate payable was 18% and during her submissions, her counsel conceded that the Defendant was indeed made aware and knew from the outset that the annual interest rate charged for the litigation loan was 18% but her position on this motion was that she wasn’t told or she didn’t understand that it was “compounded” or what that meant.

[49] The plaintiff also stated in her affidavit that she only received $10,000 from the plaintiff and that $3500 was for her lawyer’s fees and disbursements. That is not correct and she subsequently admitted that she received $11,000 for her personal expenses $2500 was used for the medical report disbursement account.

[50] Moreover, she also stated on her examination for discovery that she believed interest on the litigation loans did not start when she received the loan funds but rather not until she settled her case. In other words, she figured she thought the loan money was interest-free until she settled her case and that’s when interest started to run. That evidence simply defies logic and common sense and is contrary to the documents that she read, had reviewed for her by Mr. Beresh and which she then signed. Ms. Hoy frankly and properly conceded that it would not make any common sense to any lay person that she thought that she was getting an interest-free loan during that time period.

[51] Her sworn evidence that if she understood the interest started the day she took out the loan, she would never have taken it out is simply not reasonable or credible evidence. Her parents needed the money desperately, her father asked her for it and this was the only way she could realistically get it for them.

[52] With respect to the second loan of $2500 provided to her in December 2008 to cover the cost of a medical report obtained by her lawyer, the Defendant refuses to pay interest on that before October 2011 as she said her retainer required the lawyer to fund that disbursement until settlement of her case. She also states that the settlement and payment of the Gnys law firm account in May 2013 for $33,000 included payment of this disbursement.

[53] However, there was no basis for that submission.

[54] Firstly, there was no evidence provided on this hearing to prove that allegation which was strongly disputed by Plaintiff’s Counsel. No suggestion to that effect was contained in the statement of defence, affidavit material filed and in the transcripts of the examination for discovery and cross-examinations on the affidavits. Indeed, Ms. Hoy was not acting as Counsel for the Defendant on that matter when it was negotiated and settled in May 2013. No evidence was filed to that effect from Counsel acting for the Defendant on that matter. Lastly, the loan was from the Plaintiff, not the Gnys law firm.

[55] In addition, the Defendant refused to advise what disbursements were paid by the tort insurer as part of her settlement reached in October 2011. That could obviously include this medical report disbursement cost of approximately $2300.

[56] In essence, no proof was provided by the Defendant of that allegation made for the first time at this hearing and I find that the settlement of the Gnys law firm account in May 2013 did not include this $2500 loan amount to the Defendant which is still outstanding.

[57] The Defendant also confirms the evidence of Mr. Beresh that she requested an additional $1000 by way of litigation loan in February 2009. She stated that her mother had run up her telephone bill of over $800 and the Defendant was not able to pay it off because of her other expenses. The Defendant again received this loan through Mr. Beresh, paid off the telephone bill and used the balance to pay for her own bills. She remembers signing all of the similar loan documentation in order to obtain the $1000.

[58] After the failed mediation of November 30, 2009, the Defendant terminated her relationship with her lawyer and moved to her present counsel in early December 2009. The Defendant’s former law firm forwarded their account for legal fees and disbursements and eventually made arrangements with Ms. Hoy’s office for her to protect their account for legal fees and disbursements to be agreed or assessed.

[59] After transferring the file to her, they forwarded all relevant documents with respect to these litigation loans referred to earlier by letter of December 22, 2010. The Plaintiff through Ashley Gnys provided updates of the total amount payable under the loans and made several requests in 2011 of Ms. Hoy for confirmation that the loans would be repaid with interest on settlement of the Defendant’s action.

[60] It is significant that the Defendant and Ms. Hoy from December 2009 never questioned or challenged the right of the Plaintiff to the interest claimed on the loans, including compound interest or when the interest commenced as the documents stated or suggested that the Defendant did not understand her obligations in that regard. It was not until after the Defendant’s settlement was reached in October, 2011 and after Ms. Hoy was advised in January 2012 that the Plaintiff was the actual lender of the 3 loans that these matters were raised for the first time.

[61] Ms. Hoy then forwarded her client’s letter dated March 17, 2012 she drafted on her own letterhead to the Law Society of Upper Canada (“LSUC”) complaining about Mr. Gnys’ conduct and the ethics of this matter.

[62] The LSUC investigated advising the Defendant in July 2013 that neither the lawyers Rules of Professional Conduct nor the paralegal Rules of Conduct prohibit lawyers or paralegals from loaning money to a client. The LSUC recommended the terms of any such loan be reduced to writing and the client be informed of a potential conflict of interest and encouraged to obtain independent legal advice on the loan. It also concluded and confirmed with the Defendant that the terms of the litigation loans had been fully disclosed to her and that there was no evidence of any act or omission of the lawyer that caused her not to understand the amount of money she had to pay back or that the loan documentation required her to pay the loans from the settlement funds or other amounts recovered for her damages suffered in the motor vehicle accident.

[63] The LSUC also concluded that the Defendant not being advised in advance regarding the loan advance that the Plaintiff was the spouse of her lawyer did not cause her any damages or aggravated her financial situation. It concluded that she entered into the litigation loans knowing the risks and the costs involved and agreed to repay the loans from any proceeds she received. The fact that the lawyer’s wife owned HSRN had no relevance to that knowledge. It also concluded there was no evidence that she was persuaded or improperly suggested that she use her lawyer’s spouse’s business knowing that they were other litigation loan providers that had better, cheaper loan plans available.

[64] All of these documents to and from the LSUC were also included by the Defendant in her motion record but in my view, do not support her position taken in this litigation.

ANALYSIS

[65] Although there may have initially been a genuine issue requiring a trial on the affidavits of the parties on the factual dispute of the Defendant’s knowledge of the terms of the litigation loans, the extensive transcripts of the examinations for discovery and cross-examinations on the parties’ affidavits and the clear loan documentation now easily allow me on this summary judgment motion to weigh the evidence, evaluate the credibility of the parties and the witness Mr. Beresh and draw a reasonable inference from that evidence.

[66] In my view, the evidence clearly indicates that the Defendant was in fact fully advised, explained to and knew from the outset the loan rate being charged was 18% annually compounded monthly with the effective interest rate of 19.5% and that the interest ran from the date the loans were made and not when she received her settlement funds in her court action.

[67] The evidence of Mr. Beresh is clear and concise and makes common sense. The loan documents are also clear simple terms and corroborate what he said happened.

[68] The evidence of the Defendant for all intents and purposes confirms and corroborates the evidence of Mr. Beresh rather than contradicts it. In addition, her evidence on some significant issues such as when the interest commenced is simply not reasonable and credible evidence. She admitted and her lawyer conceded at the hearing that she knew from the outset that the loans required 18% annual interest which is not significantly less than the effective rate of interest of 19.5%. Lastly, there was never any suggestion that she did not fully understand the terms of the loans until after she learned the lender was the spouse of her previous lawyer in January 2012.

[69] My making that finding of fact would not be against the interest of justice. Given the amount involved and the significant legal costs incurred to date by both parties, this is a fair and just result including the timeliness, affordability, and proportionality involved in this litigation.

[70] It is now appropriate to consider the law applicable to those facts.

[71] It should be noted that Plaintiff’s counsel conceded at the outset of the hearing that the Gnys law firm admitted that independent legal advice was not provided to the Defendant and that the Defendant was not advised the Plaintiff providing the litigation loans was the spouse of Defendant’s lawyer.

[72] In any event, no third-party proceedings in this action were commenced by the Defendant against Ashley Gnys or his law firm claiming a breach of duty, vicarious liability or indemnity for the alleged excessive interest charged on the litigation loans.

[73] Rather, the Defendant waited until February 2015 to commence a separate action against that law firm claiming substantial damages for their breach of their duties and vicarious liability for the actions of their employee Valerie Gnys regarding these loans to the Defendant in this action. A motion by the law firm for summary judgment to dismiss that action, including a defence under the Limitations Act, was brought returnable on the same date of this hearing. Ms. Hoy objected to that motion proceeding before me stating she wished to again conduct cross examinations on the affidavits filed even though they were not significantly different and extensive examinations for discovery and cross examinations have already been held in this matter. Accordingly, because of that request, that motion was adjourned at the end of this hearing pending the decision in this motion.

[74] Defendant’s counsel alleged the following five breaches of fiduciary duty which caused her damages which she claims is the excessive rate of interest in this case. In my view, none of them have any substance or merit.

[75] Firstly, although the Defendant was not advised the Plaintiff was a spouse of her lawyer, it appears clear that that was irrelevant to her decision to obtaining the litigation loans. She wanted the money for her personal expenses on two of the three occasions and knew she couldn’t get it elsewhere. She was provided with comparable rates and terms of other litigation lenders and it is clear that the rates offered by HSRN were more favourable to her. The only thing she stated was that had she had known the Plaintiff was her lawyer’s wife, she would “have to explore other options”. However, she never stated with those options were and it is clear there were none given her poor financial position. In addition, it would make no sense for her to obtain a litigation loan from the other lenders at significantly higher interest rates. In fact, her lawyer Ms. Hoy advised her not to answer questions on her examination of what her losses would have been had she gone with Lexmark Funding suggesting it was “speculative” and not relevant. I disagree.

[76] What is also clear is that her leaving the former law firm and retaining Ms. Hoy had nothing to do with the litigation loan issues but rather was the result of a failed mediation of November 29, 2009. She became upset at the results and her lawyer’s recommendations for settlement. She apparently achieved a significantly better result using Ms.Hoy’s office in October 2011.

[77] Her second allegation is that she wasn’t advised or explained that the loan interest was compounded. However, it is clear on the evidence that that would have made no difference to the Defendant at all for the same reasons mentioned above.

[78] Moreover, it is noteworthy that she never suggested that she didn’t understand the terms of the litigation loans, the interest rate and compound interest until January 2012 when she was advised the Plaintiff was the spouse of former lawyer. Nothing had been said since the loans were first advanced in 2008 and 2009 about those alleged concerns of not understanding the terms of the loan and interest rates even though she and her new lawyer had all those relevant documents no later than December 2010. The reasonable inference is that nothing was said because she indeed understood the loan terms and conditions including compound interest.

[79] The Defendant stated she did not receive as part of her settlement with the tort insurer an amount representing the cost of these litigation loans to her. It would not have been unusual or unreasonable for experienced plaintiff’s personal injury lawyers to make that request as part of the plaintiff’s claims. However what is troubling is that when asked whether an attempt was in fact made by Ms. Hoy to obtain reimbursement for the Defendant’s incurred cost of these litigation loans during her settlement discussions with the tort insurer, she refused to let her client answer that question suggesting that the settlement was “confidential” even though her client stated the settlement did not include a payment for that amount.

[80] I disagree. Obviously, if an attempt had been made by the defendant to include the cost of these litigation loans in the Defendant’s settlement discussions with the tort defendant in 2010 or 2011, that would clearly indicate the extent of the Defendant’s knowledge then of the litigation loan terms with the Plaintiff including the interest rate, when the interest commenced, compound interest charged thereon and the amount outstanding at the time of those negotiations.

[81] Again, as indicated above, there had been no suggestion or indication by the Defendant or her new Counsel to the Defendant’s former law firm until early 2012 that she did not fully understand any of these terms of the loans. That request was indeed appropriate and the information requested was relevant to the Defendant’s actual knowledge of the loan terms and ought to have been disclosed. Defendant’s counsel in her factum and at the hearing submitted that the Court may draw an adverse interest when answers on a cross-examination are refused. Although it is not a major or deciding factor in this case, that refusal to disclose that information leads me to a reasonable inference that that disclosure would not have been helpful to the Defendant’s position being advanced on that issue.

[82] The third complaint is that the law firm and Plaintiff breached their fiduciary duty by not recommending a bank loan instead, not trying to obtain an advance payment from the tort insurer and not advising her not to take out the litigation loans in the first place.

[83] As indicated above, there is no substance to these allegations.

[84] Firstly, regarding the bank loan issue, the Plaintiff herself would have known that she couldn’t obtain a bank loan because of her poor financial circumstances. Her Counsel conceded she had a terrible credit rating and had maxed out her credit cards at $5500. Mr. Beresh, a former bank manager, knew a bank loan application would be futile and a waste of time. There was no evidence provided by the Defendant that a bank would have advanced her a loan if she had applied. In fact, the logical inference from the evidence is that that was unlikely.

[85] Secondly, regarding the advance payment issue, Ms. Hoy conceded that she did not ask for an advance payment from the tort insurer in this case for the Defendant and that it was highly unlikely (a 1% to 10% chance) that this particular tort insurer would have made any advance payment in this case in any event. Ms. Hoy and the Defendant would have known the litigation loans were bearing interest at 18% compounded because they had all the documents. If her submission had merit, logic indicates that it would have been in the Defendant’s best interests for her to try and obtain an advance payment after she received the file and pay it to the Plaintiff to stop that interest from running on those loans. She did not. To now suggest that Mr. Gnys breached his duty to the Defendant by not asking for an advance payment from the tort insurer, in these circumstances, is both unfair and unreasonable.

[86] Thirdly, regarding the lack of advice not to take out the litigation loan, it was the Defendant who initially approached her lawyer regarding the litigation loan of $10,000 for her personal expenses which she gave her father in July 2008 and $1000 for own personal expenses in February 2009. It was not the other way around. She then withheld the real reason for the requested $10,000 loan from Mr. Beresh and her lawyer and gave a false one instead. How could Mr. Beresh or the law firm advise her on that issue if she wasn’t being totally frank with them regarding the real purpose of the proposed $10,000 loan?

[87] In addition, she never complained in her statement of defence or affidavit that her former firm should have advised her not to obtain the loan. She understood the 18% interest rates which would have been familiar to her given her own credit card debts. She now admits her obligation to repay the principal amount of two of the loans which should have been paid when she settled her case and received her settlement funds. She simply states that due to the fact the loans are now being “disputed”, that is the reason why they were not paid. That is no legitimate reason.

[88] The fourth and fifth allegations are that the Plaintiff did not tell her she was making a profit on the 18% loan which was secret and how much the profit was. The Plaintiff admitted the Defendant was not advised the Plaintiff was the spouse of her lawyer Mr. Gnys.

[89] The Defendant admits that there is no evidence that the Defendant’s former lawyer in any way delayed settlement negotiations of her claims for the purpose of enabling his spouse to earn more interest on the litigation loans from her.

[90] These allegations can be considered along the same lines of the allegations that the Plaintiff did not honestly perform the terms of her contract with the Defendant.

[91] The Defendant submits that the annual 18% compounded interest on the loans should not be payable because of the Plaintiff’s breach of her duty of honest performance of the contract and breach of her fiduciary duties. Bhasin V Hyrnew v. Larry Hyrnew and Heritage Education Funds Inc. 2014 SCC 71.

[92] I disagree.

[93] Even assuming there was a breach of the Plaintiff’s obligation to be honest in her dealings with the Defendant regarding the loan contract, her liability for damages of the Defendant is calculated on what the Defendant’s economic position would have been had the Plaintiff fulfilled that duty. Bhasian, above, para. 108.

[94] Firstly, the Defendant was fully aware of all the relevant terms of the litigation loans including the fact that the interest rate being provided was less than all of the other litigation lenders rates in the industry. The Defendant was familiar with the Plaintiff and the Defendant knew financial disclosure of her position would have to be submitted to any litigation lender including the Plaintiff. It is not likely that she would have chosen another litigation lender charging higher rates for the loans than were being charged by the Plaintiff had she known the Plaintiff at the outset was the actual lender especially as she had no other likely source of borrowing the money. The reasonable inference is that it is more likely than not the Defendant, who was on good terms then with her lawyer, would indeed have proceeded with the litigation loans proposed with HSRN in any event.

[95] Alternatively, at worst, had she chosen not to proceed with HSRN if she knew the Plaintiff was the spouse of her lawyer, her only realistic option would have been for her to obtain a litigation loan from another lender in the industry which would have been at higher interest rates with less favourable terms.

[96] She cannot succeed in damages in a claim for breach of contract of her retainer because she has not established any damages flowing from the alleged contractual breach. Strother v. 3464920 Canada Inc. 2007 SCC 24 @ para. 48.

[97] In addition, this is not a case where a breach of a fiduciary duty by the Plaintiff has resulted in the Plaintiff wrongly appropriating profit that properly belongs to the Defendant. There is no restitutionary purpose in any potential remedy for breach of fiduciary duty in this case. Strother, p.75.

[98] Equitable remedies are always subject to the discretion of the court. This is not a case where the potential conflict between the Plaintiff and Defendant compromised the Plaintiff’s or the law firm’s duty to zealously represent the Defendant’s interest. There was no substantial risk created by the Plaintiff’s actions and nothing occurred such that the representation of the Defendant would be materially and adversely affected by the law firm’s consideration of the interest of the Plaintiff in the litigation loan advanced to the Defendant. The risk, if any, unlike that in Strother, did not become a fact.

[99] As indicated above, even if the Defendant had chosen not to proceed with the litigation loan from the Plaintiff because of her being the spouse of her lawyer, the only other route that she would and could have taken on the facts would be to obtain a litigation loan from other lenders in the industry at a higher cost and on less favourable terms.

[100] The Defendant in her factum filed a few days before this hearing for the first time stated that she was not obligated to pay the stipulated interest on the litigation loans as they were “unconscionable transactions” within the meaning of the Unconscionable Transactions Relief Act. However no such pleading was made to that effect in her statement of defence or evidence provided in her affidavit material.

[101] In any event, the cost of the litigation loan of 18% annual interest compounded or an effective rate of 19.5% was clearly not excessive and the transaction was not harsh and unconscionable. Litigation loans by lenders in the industry in personal injury actions, including the term that they are only repayable if the claimant is successful in achieving a settlement amount in a litigation claim, require payment of interest at significantly higher interest rates than bank loans. In fact, the uncontradicted evidence is that the other litigation lenders would have required higher rates of interest than the one used by the Plaintiff in this case. The Defendant was advised of the applicable interest rate for the loans she requested including compound interest and there is no evidence that an unfair advantage had been taken of her as the borrower. She provided her free and valid consent to the loan agreements which were entered into voluntarily and innocently by both parties. Milani v. Banks (1997) 1997 1765 (ON CA), 32 O.R. (3d) 557 (OCA).

[102] The Defendant also raised the defence of non est factum in that she did not understand how the loan documents worked. Given the findings of fact made by me as indicated above, there is no basis or support for this submission.

[103] There is no genuine issue requiring a trial based on the evidence before me and that even if there was, there is no need for a trial given the facts which I have been able to find based on that evidence.

[104] It is unfortunate that the Defendant, for whatever tactical reasons, chose not to repay at least the principal amount of the loans of $13,500 back in October 2011 when she received her settlement funds. At that time, the three loans totaled approximately $23,700 inclusive of interest. Had she done so, this matter would or should have proceeded for resolution in Small Claims Court for the balance in dispute with minimal cost and time incurred by the parties and the administration of justice. Significant interest has accrued since that date but that is the risk she took. Delaying the resolution of this dispute between the parties any further until a trial would only result in added time and expense for the parties and the justice system for no good reason.

Conclusion

[105] Accordingly, the Plaintiff shall have judgment against the Defendant for the principal amount of the loans of $10,000 and $1000 respectively and lender fees thereon together with interest at the annual rate of 18% calculated monthly with an effective annual rate of interest of 19.5% calculated from the date of those loan advances.

[106] The Plaintiff shall also have judgment against the Defendant in the principal amount of the loan of $2500.

[107] Accordingly, the amounts owing by the Defendant to the Plaintiff are as follows:

a) $10,400 plus interest owing as of June 26, 2015 in the amount of $25,547.15 for a total of $35,947.15.

b) $2500 owing as of June 26, 2015 .

c) $1040 plus interest owing as of June 26, 2015 in the amount of $2207 for a total of $3247.

[108] If the parties cannot agree on the applicable post judgment interest commencing June 27, 2015 and wish to make submissions thereon, each can do so within 10 days from the date of this decision of no more than two pages in length plus any applicable case law.

[109] Subject to any written offers to settle, the Plaintiff would normally be entitled to her costs of this action on a partial indemnity basis. If the parties are unable to agree on the issue of costs, the Plaintiff can make her written submissions of no more than four pages in length plus a bill of costs within 10 days from the date of this decision. The Defendant shall have seven days thereafter to similarly respond.

The Honourable Mr. Justice R. J. Nightingale

Released: July 22, 2015

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

Valerie Gnys carrying on business as Health Services Recovery Network

Plaintiff

– and –

Marta Narbutt

Defendant

REASONS FOR JUDGMENT

The Honourable Mr. Justice R. J. Nightingale

Released: July 22, 2015