Reasons for Judgment

Court File No.: CV-23-00708692-0000
Date: 2025-02-07
Ontario Superior Court of Justice

Between:
Chadwick Randy Kelly by his Litigation Guardian Joseph Bernard Kelly, and Joseph Bernard Kelly in his capacity as Power of Attorney for Property of Chadwick Randy Kelly (Applicants)
– and –
BridgePoint Financial Services Limited Partnership I (Respondent)

Appearances:
Leigh Harrison and Julien Bonniere, for the Applicants
Eric Sherkin and Abby McGivney, for the Respondent
Heard: November 5, 2024

Reasons for Judgment
Sean F. Callaghan

Introduction

[1] This is an Application brought pursuant to s. 4(1) of the Unconscionable Transactions Relief Act, RSO 1990, c U.2 (the “UTRA”). The Applicants seek to set aside loan agreements which were entered into with the Respondent.

[2] The Applicant, Chadwick Kelly (“Chadwick”), was catastrophically injured in a motor vehicle accident that occurred on April 18, 2010. To purchase and retrofit a home to meet his physical needs, Chadwick borrowed $145,500 from the Respondent, BridgePoint Financial Services Limited Partnership I (“BridgePoint”), which carries on business as a litigation lender. The loans carry 20% and 24% interest per annum, compounded semi-annually. The loans were to be repaid with any “damages” received by Chadwick from any award or settlement of his claims arising from the accident.

[3] It is now over ten years later, and the loans have ballooned because of the compounding interest. The amount owing on the loans is now more than $1.1 million, with interest being by far the largest component. Chadwick submits that the cost of the loans is excessive, and the loan agreements are harsh and unconscionable and, as such, he seeks to wholly set aside the loan agreements with BridgePoint.

[4] For the reasons that follow, I am of the view that there are insufficient grounds to set aside the loan agreements. Accordingly, this application is dismissed.

Background

[5] Chadwick was catastrophically injured in a motor vehicle collision which occurred on or about April 18, 2010.

[6] According to the investigator’s notes, Chadwick failed to stop at a stop sign, entered the intersection, and collided with another vehicle before ending up in a ditch. His then girlfriend was also in the vehicle and was also catastrophically injured.

[7] As a result of the nature of his injuries, Chadwick was found to be catastrophically impaired pursuant to s. 40 of the Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996, O. Reg 403/96 (the “SABS”) as amended and received enhanced accident benefits in accordance with the catastrophic limits. He requires 24 hour care which is provided by his father and personal support workers.

[8] Chadwick underwent a capacity assessment in or around February 28, 2014, and was found to be incapable of managing his property and his personal care. He was found competent to appoint a Power of Attorney for Property and Personal Care.

[9] Chadwick appointed his father, Joseph Chadwick (“Joseph”), as his Enduring Power of Attorney for Property (“Attorney for Property”). Given Chadwick’s condition, Joseph acted and continues to act as the Attorney for Property. Joseph is also Chadwick’s litigation guardian. The Applicants retained Sergio Grillone and the Grillone Law Firm to represent Chadwick with respect to his accident benefits and tort claims arising from the accident.

[10] Given his injuries, the home where Chadwick was living prior to the accident was no longer suitable for his needs. He had been in hospital for a lengthy period but upon his release he needed a suitable place to live given his physical restrictions.

[11] Joseph, as Chadwick’s Attorney for Property, purchased a property for $519,000.00 (the “Property”). Mr. Grillone was involved in the purchase of the Property and in obtaining the financing. Most of the financing was obtained via a conventional mortgage with the Home Trust Company (“Home Trust”). The Home Trust mortgage was in the amount of $389,925.00 for a one-year term with an interest rate of 4.99%. But more funds were needed to complete the purchase and for subsequent renovations to the Property.

[12] On the recommendation of Mr. Grillone, Joseph applied for and received two loans from BridgePoint. Mr. Grillone negotiated the loans. The loan agreements were executed by Joseph, as the Attorney for Property and as the proposed litigation guardian for his son.

[13] In obtaining the loans, Mr. Grillone advised BridgePoint that Chadwick had been deemed catastrophically impaired by his insurer. He advised that it was anticipated by early fall 2014 that the SAB claim would be settled with a $1 million lump sum payment and another $1 million structured settlement. BridgePoint was advised that Chadwick needed the money for a home and subsequent renovations. A letter outlining the proposed settlement from the SAB insurer to Mr. Grillone was provided to BridgePoint.

[14] This first loan, obtained June 23, 2014, was for $40,500 and accrued interest at 24% per annum, compounded semi-annually. The second loan was for $115,000 and was entered into on August 20, 2014. The repayment to BridgePoint on the first loan was subordinated to Grillone Law Firm’s fees and disbursements. On the second loan, BridgePoint received first priority on any damages in exchange for lowering the interest rate to 20% rather than 24%.

[15] The parties entered a “Plaintiff Loan Agreement” for each loan (the “Loan Agreements”). The terms of the loans, aside from the interest rate and priority of repayment, were the same for each loan. The Loan Agreements provided that the loans were to be repaid from the “proceeds of settlement and/or judicial award from any and all claims for damages (made on behalf of Chadwick Randy Kelly) arising out of potential or ongoing litigation, or any portion thereof, arising as a result of a Motor Vehicle Accident which took place on Sunday April 18th 2010…”.

[16] No payment was due to BridgePoint until Chadwick received “damages” in satisfaction of his claims (the “Settlement Funds”). BridgePoint was to have a security interest over the Settlement Funds. If the Settlement Funds were not sufficient to repay the loan, the “Borrower” would be responsible for any outstanding amount. The Borrower was identified as “Joseph Kelly, in his capacity as proposed Litigation Guardian and Power of Attorney for Property for and on behalf of Chadwick Randy Kelly.” The Loan Agreements provided that the “Borrower…has had the opportunity to obtain independent legal advice before executing the Loan Agreement” or other documents executed to complete the loans.

[17] BridgePoint was aware that Mr. Grillone was assisting Joseph and Chadwick. BridgePoint did not follow up further on the issue of independent legal advice. If Joseph was to cease acting as Litigation Guardian, the Loan Agreements required, among other things, that any new Litigation Guardian was to execute a “Certificate of Independent Legal Advice”. No such certificate was required at the time of signing the Loan Agreements.

[18] An Irrevocable Authorization and Direction for each loan (the “Directions”) was executed. The Directions reiterated that BridgePoint was to be repaid “following the payment of legal fees, costs, disbursements and applicable taxes and in priority to Chadwick Randy Kelly's entitlement, directly or indirectly, to damages”. The Directions were signed by Joseph as the proposed litigation guardian and as the Attorney for Property for Chadwick. The Directions reiterated that should the “damages” be insufficient to repay the principal and interest owing on the loans, that the Borrower would “personally remain fully obligated to repay any portion still owing on the Loan Amount plus accrued interest at the rate noted above until such time as the Loan is fully repaid.”

[19] Both loans could be repaid without penalty, at any time after six months. While there was no repayment obligation until a settlement or award resulted in “damages”, BridgePoint sent monthly statements to Joseph as to the status of the loans, which showed the accumulating interest. Joseph testified that he would call Mr. Grillone when he received the statements because he was concerned about the increasing amounts owed and was told by Mr. Grillone not to worry about the notices.

[20] BridgePoint anticipated that the SAB claim would settle within months of providing the loans. As it happened the SAB claim did not settle until many years later.

[21] There was a suggestion that Mr. Grillone’s brother arranged the loans, but the evidence is not persuasive on this point. Joseph and his counsel testified that they understood that Mr. Grillone’s brother-in-law arranged the loans but provided no explanation as to what information they received to come to that understanding. Indeed, Mr. Grillone had dealt with BridgePoint in the past, both for his clients and for his own practice. It is not clear why he would need anyone to arrange the loans for him.

[22] Joseph says he left the negotiations of the loans up to Mr. Grillone. He described himself as having “very little involvement” in the loans. Joseph says that Mr. Grillone was the one who found the Property and that he told Joseph that he would find the money for the purchase. Joseph could not recall if he ever read the loan documentation. Joseph also could not recall if he even reviewed the loan documents with Mr. Grillone but accepted that he could ask Mr. Grillone whatever he “needed to”. Joseph’s evidence was vague and imprecise on what he did or what he was told about the loans.

[23] The proceeds from the two BridgePoint loans were provided to Mr. Grillone’s law firm, in trust. In 2019, Mr. Grillone took a medical leave from practice. BridgePoint obtained access to the law firm trust ledgers from the person managing the firm in Mr. Grillone’s absence. BridgePoint asserts that the money can be traced through the entries and notations in the trust ledger. It points to entries that describe advances made from the firm’s general account to pay expenses related to the purchase of the Home that are later reimbursed from the BridgePoint funds. In contrast, the Applicants assert that approximately $45,000 cannot be reconciled in Mr. Grillone’s trust ledger. Mr. Falconeri, the Applicants’ counsel, states in his affidavit that it is his understanding that $45,000 is unaccounted for. However, he has failed to explain how he has come to that amount and has not made any reference to the account statements. Mr. Grillone did not testify in this proceeding and was not summoned by either party.

[24] Mr. Grillone made the monthly payments on the Home Trust mortgage but, unbeknownst to the Applicants, stopped doing so on June 1, 2018. Home Trust began default proceedings in July 2018. Judgment was eventually received by Home Trust in the amount of $388,107.25. The judgment awarded possession of the Property to Home Trust.

[25] The Applicants state that they only found out about the default, judgment, and the order of possession, when they were served personally with Home Trust’s judgment in 2019. There is currently litigation between the Applicants and Home Trust regarding the judgment and order for possession. Chadwick still resides at the Property.

[26] In August of 2019, the Applicants dismissed Mr. Grillone as their lawyer of record and appointed Joseph Falconeri as their new counsel. Mr. Grillone ceased practicing law. The Law Society of Ontario took over his practice and facilitated the transfer of Chadwick’s file to Mr. Falconeri. Mr. Falconeri signed a direction and authorization acknowledging BridgePoint’s loans and agreeing to abide by the Directions.

[27] The SAB claim settled in 2021 for $900,000. By that time, the SAB insurer had already paid in the range of $1,000,000 for Chadwick’s care. The BridgePoint loans were over $700,000 at that time.

[28] A motion to approve the SAB settlement was heard by Justice Wilson (as she then was) on December 8, 2021. At that time, she was not prepared to allow the SAB settlement proceeds to be used for repayment of the BridgePoint loans. She asked the Public Guardian and Trustee (“PGT”) to review the proposed settlement including the circumstances giving rise to the BridgePoint loans.

[29] Ultimately, Wilson J. approved the proposed SAB settlement in the amount of $900,000.00 but noted that:

a) It was unclear as to whether Joseph had received proper independent legal advice prior to signing the loan agreements;
b) The circumstances surrounding the execution of the loan agreements were not clear;
c) The issue of from which claim the loan agreements was to be paid was unclear; and
d) That the PGT be directed to report and make recommendations on the proposed distributions, the structure, and the issue of the loan agreements from BridgePoint.

[30] On March 27, 2023, the PGT delivered its report to Justice Wilson (the “PGT Report”). The PGT Report opposed payment to BridgePoint from the SAB settlement proceeds due to the uncertainty surrounding the execution of the loan agreements and whether the loans were payable from the tort action, the SAB claim, or a combination of both. The PGT Report recommended that “Plaintiff’s Counsel may wish to consider advancing options for relief from the interest owing on the BridgePoint Loan pursuant to the Unconscionable Transactions Act, R.S.O. 1990, c.U.2, [sic] other legislation or the common law”.

[31] In approving the settlement, Justice Wilson declined to order any payment from the SAB settlement proceeds to BridgePoint. It was Justice Wilson’s view that any claim by BridgePoint was best determined in a separate proceeding. A subsequent attempt to vary her ruling by BridgePoint was rejected.

[32] The tort claim settled in 2023, ten days before trial, at a pretrial with Justice Edwards. A motion in writing was filed to approve the proposed settlement. In July 2023, Justice Edwards approved a structured settlement in the amount of $650,000.

[33] BridgePoint later learned of the tort settlement and sought a hearing with Justice Edwards. The request was denied. BridgePoint sought to appeal the denial to be heard to the Court of Appeal. The Court of Appeal refused leave and, in its endorsement, noted that BridgePoint “did not pursue its available remedies in the Superior Court”. BridgePoint has now brought a motion to vary the judgment of Justice Edwards approving the settlement.

[34] There are several other proceedings outstanding that address the BridgePoint loans. BridgePoint commenced an action against the Applicants for breach of the Loan Agreements. BridgePoint commenced an action against Mr. Grillone and Mr. Falconeri for, among other things, the breach of the Directions to pay BridgePoint once Chadwick’s claims settled.

[35] The Applicants commenced a separate action against BridgePoint for intentional interference with economic and contractual relations. The Applicants have also commenced an action against Mr. Grillone for his involvement in prosecuting the claims and his handling of the Home Trust loan. They allege that Mr. Grillone failed to advise them of a SAB settlement offer in June 2017. Had Mr. Grillone advised them of the offer, the Applicants allege that they would have accepted the offer, which would have allowed them to begin repaying the BridgePoint loans. That action does not address any alleged negligence by Mr. Grillone in the obtaining of the loans nor does the action allege that Mr. Grillone was in a conflict of interest in obtaining the loans.

[36] As of June 30, 2024, the amount owing on the loans is $1,155,004.82. Of this amount, the interest component is $999,504.82.

[37] BridgePoint has made a “with prejudice” offer to reduce the interest to 13%, which it says would result in a net operating loss on the loans, although there is no supporting financial data as to how BridgePoint arrives at its profit margins or otherwise verifies that it would suffer a net operating loss at that rate. In response, the Applicants made a “with prejudice” offer to settle the outstanding loans for a payment of $10. Neither offer was accepted.

Issue

[38] The issue on this Application is whether the court should “wholly set aside” the BridgePoint loans pursuant to s. 2(d) of the UTRA. While the Application sought alternate relief by way of a request to revise or alter the BridgePoint Loan Agreements to effectively reduce the amount owing, counsel for the Applicants advised in argument that the Applicants are not pursuing that alternate relief.

[39] An alleged violation of the UTRA is the only claim being addressed in this Application. I am advised that other relief relative to the Loan Agreements is being sought in the other mentioned proceedings. In a case conference seeking to marshal the various proceedings, Justice Praghi directed that this UTRA issue should proceed first.

Statutory Scheme

[40] The UTRA has been largely in its current form since 1946. There was predecessor legislation back to 1912. The UTRA addresses only one type of contract, being lending agreements. The legislation addresses whether an impugned lending transaction “is one which it would be proper to maintain as having been freely consented to by the debtor”: The Attorney-General For Ontario v. Barfried Enterprises Ltd., [1963] SCR 570, at p. 577.

[41] Where there is a concern about the propriety of a lending transaction, s. 4(1) of the UTRA allows the debtor to apply to the court for relief and states as follows:

Relief by way of originating notice
4 (1) In addition to any right that a debtor may have under this or any other Act or otherwise in respect of money lent, the debtor may apply for relief under this Act to the Superior Court of Justice which may exercise any of the powers of the court under section 2. R.S.O. 1990, c. U.2, s. 4(1); 2006, c. 19, Sched. C, s. 1(1).

[42] Where proper grounds have been established by the debtor, the court is empowered, among other things, to either nullify or rewrite a lending agreement or order the repayment of monies received by the lender. Section 2 of the UTRA reads as follows:

The court may,
2. Where, in respect of money lent, the court finds that, having regard to the risk and to all the circumstances, the cost of the loan is excessive and that the transaction is harsh and unconscionable, the court may,
(a) reopen the transaction and take an account between the creditor and the debtor;
(b) despite any statement or settlement of account or any agreement purporting to close previous dealings and create a new obligation, reopen any account already taken and relieve the debtor from payment of any sum in excess of the sum adjudged by the court to be fairly due in respect of the principal and the cost of the loan;
(c) order the creditor to repay any such excess if the same has been paid or allowed on account by the debtor;
(d) set aside either wholly or in part or revise or alter any security given or agreement made in respect of the money lent, and, if the creditor has parted with the security, order the creditor to indemnify the debtor. R.S.O. 1990, c. U.2, s. 2.

[43] The onus is on the debtor to prove, having regard to the risk and all the circumstances of the transaction, that the cost of the loan is excessive, and that the transaction is harsh and unconscionable: McHugh v. Forbes 50 O.A.C. 202. As highlighted, the test in s. 2 of the UTRA, unlike some provinces, is a conjunctive test requiring the borrower to prove each element. In some jurisdictions, such as Saskatchewan, the test is a disjunctive, requiring the party to prove only one element: see Unconscionable Transaction Relief Act, R.S.S. 1978, c U-11, s. 2, which modifies the provision to say, “the cost of the loan is excessive or that the transaction is harsh or unconscionable”. As such, cases from other jurisdictions must be read having regard to the language in the applicable statute.

[44] Given the UTRA’s long life and remedial powers to address lending agreements, there are fewer cases addressing its interpretation than one might expect. One of the first cases of note addressed whether the legislation was properly within provincial jurisdiction. In The Attorney-General For Ontario v. Barfried Enterprises Ltd., it was argued that the pith and substance of the legislation addressed “interest”, which was an area expressly reserved for the Parliament of Canada. In concluding that the UTRA was within the province’s legislative domain, Justice Judson described the legislation as empowering “the Court to grant specified relief in respect of money lent where it finds that the ‘cost of the loan’ is excessive and the transaction harsh and unconscionable”: Barfried Enterprises Ltd. at p. 573.

[45] Justice Judson noted that this was not legislation focused on the amount of interest charged, but rather on “whether the transaction as a whole is one which it would be proper to maintain as having been freely consented to by the debtor”: Barfried Enterprises Ltd., at p. 577. The concept of ensuring the agreement was freely entered into by the borrower was further emphasised by Justice Judson when setting out the theory of the UTRA at p. 577:

The theory of the legislation is that the Court is enabled to relieve a debtor, at least in part, of the obligations of a contract to which in all the circumstances of the case he cannot be said to have given a free and valid consent.

[46] Justice Judson recognized that the remedy provided by the UTRA “involves the nullity or setting aside of the contract and the substitution of a new contractual obligation based upon what the court deems it reasonable to write within the statutory limitations”: Barfried Enterprises Ltd. at p. 578. In this regard, the UTRA modifies the general rule that it is not the function of the courts to rewrite the contracts of the parties: Pacific National Investments Ltd v. Victoria (City), 2004 SCC 75, para 31.

[47] In addressing relief, the concept of “reasonableness” applies. While the power exists for a court to wholly nullify an agreement, it can only do so if it is reasonable, which implies that the court must consider the interest of both parties. Section 2 provides that the court can amend the loan by modifying those terms which make the impugned agreement harsh. The Court of Appeal in Milani v. Banks, para 26, cautioned that a judge must exercise the authority to set aside an agreement under s. 2(d) on “some rationale basis”. Here, the request is to wholly nullify the Loan Agreements under s. 2(d) so that not even the principal is repaid.

Analysis

[48] In applying the test in s. 2 of UTRA, the parties both submitted that the proper framework to apply was set out in McPherson v. Napior, 2017 ONSC 5934, para 9, which reads as follows:

1. To establish that the loan is excessive:
   (i) The debtor must show that the cost constitutes a criminal rate of interest; or
   (ii) The debtor must show that the cost of the loan is excessive having regard to the risk and all of the circumstances.
2. To establish that the transaction is harsh and unconscionable:
   (i) The debtor must show that either the terms are very unfair or that the consideration is grossly inadequate; or,
   (ii) The debtor must show that there was an inequality of bargaining power between the parties and that one of the parties took advantage of this.

[49] While I accept that the above provides a framework for analysis, the test itself is already simply stated at the outset of s. 2 being that (i) the cost of the loan is excessive and (ii) that the transaction is harsh and unconscionable, both of which must be considered having regard to “the risk and all the circumstances”.

[50] Returning to the formulation of the test that I have been asked to apply, the test is in two parts and both parts must be answered in the positive to meet the requirements of s. 2. However, as set out in McPherson, each part may be answered by meeting either of the elements in subparagraphs (i) or (ii).

[51] The first issue is whether the cost of the loan is excessive. It is agreed that the interest is not at a criminal rate of interest and therefore 1(i) has no application. Instead, the Applicants rely on the second element of the first part of the test in 1(ii). That is, the cost of the loan is excessive having regard to “the risk and all the circumstances” of the transaction. In doing so, the cost of the loan needs to be assessed having regard to not only the terms of the loan and the ultimate cost of the loan, but also the risk borne by the parties and all the circumstances of the loans.

[52] In the case of Steinberg v. Adderley, 2024 ONCA 167, the plaintiff had been injured in a motor vehicle accident. The plaintiff, like Chadwick, obtained a loan from BridgePoint. Like the loans in this case, interest was 20% and 24% per annum, compounded semi-annually. The motion judge referred to the loans as “contractually sound” but reduced the loan amount given the impact of Covid-19.

[53] At para. 11, the Court of Appeal in Steinberg held that, as the motion judge did not find the loans to be unconscionable, that the interest rates alone would not render the loans contrary to the UTRA:

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”.

[54] The Court of Appeal found the loan agreement expressly allocated the risk in that the interest was to accrue until paid. In that regard the court stated at para. 13:

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.

[55] As found in Steinberg, the fact that interest was charged at 20-24% does not in itself invalidate a contract under the UTRA. Aside from Steinberg, other cases have found interest rates at these levels not to be excessive: see discussion in Mountain Investment Corp. v. Quewezance, 2022 SKKB 266, para 32.

[56] In Milani v. Banks, para 26, the court commented that the level of risk by the lender in advancing the loan is vital to understanding the suitability of the loan and in the taking security for the loan. To assess the risk, the court is to conduct a review of the circumstances surrounding the loan to determine whether the taking and receiving of security was “not only wise on the part of the lender, but also fair from the point of view of the borrower”: Milani at para. 26. Milani set out various factors that may be considered to assess the risk. These included factors such as whether the borrower was known to the lender, whether the loan was for a short or long duration, whether the borrower solicited the loan, whether the lender had to borrow to fund the loan and whether the loan could have been obtained at a lesser rate of interest: Milani at para. 26; Ekstein v. Jones, para 51. Each case obviously turns on its own facts and the relevant factors will vary from case to case.

[57] In this case, there was no prior history between BridgePoint and the Applicants. The loan was requested by the Applicants. There was no evidence that a cheaper loan was available to the Applicants to bridge the more conventional Home Trust loan or pay for the renovations.

[58] In this case, like Steinberg, the loans were not payable until the actions settled. BridgePoint had no ability to call the loan before a “damages” settlement or award was achieved for Chadwick. As such, the Loan Agreements allocated significant risk to BridgePoint, as it was only entitled to repayment if, and not until, “damages” were received by Chadwick. Unlike conventional loans, repayment was dependent on the event of a “damages” settlement, an event over which BridgePoint had no control. The fact that it was anticipated that a settlement in the SAB claim might be months away does not alter the fact that the Loan Agreements left the risk of repayment dependent on a future event, dependent solely on the Applicants and the SAB insurer. In contrast, the Loan Agreements left it open for the Applicants to repay the loan amounts at any time after six months. In the circumstances, it was known that Chadwick’s only means of repayment was the receipt of “damages” in settling either of the two proceedings. In their action against Mr. Grillone, the Applicants assert that Mr. Grillone was negligent in failing to advise the Applicants of an offer in 2017 that could have allowed them to begin repaying the loans. Clearly, it is the view of the Applicants that, but for Mr. Grillone’s alleged negligence, the loans could have been repaid much earlier and interest would not have ballooned as significantly as it has.

[59] It was part of the inherent risk profile of these loans that interest would accumulate until there was a settlement or an award in the tort and/or SAB claims. In that regard, the “cost of the loan” is merely a factor of the time it has taken to settle the SAB and tort claims (assuming the Applicants are entitled to payment from those funds which has yet to occur and is not part of this action). In terms of risk, the possibility of a delayed repayment to BridgePoint was reflected in the interest rate. Correspondingly, the longer it took to conclude the settlements, the more interest would have to be paid. As noted by the Court of Appeal in Steinberg, the delay in settlement was an allocated risk in the Loan Agreements.

[60] BridgePoint’s only security for the loans were the “damage” proceeds from the two claims. As it happens, notwithstanding both claims have settled, no funds have been received by BridgePoint. I am not called upon to assess whether BridgePoint was entitled to repayment upon approval of the two settlements, but that debate evidences a further risk in respect of the wording of the repayment provision of the Loan Agreements.

[61] These various risks to BridgePoint are reflected in the interest rates of 20-24% and the terms of the Loan Agreements that provided that the loans were only repayable if, and when, “damages” were received for Chadwick’s claims. Aside from the Settlement Funds, there was no security for these loans. While the BridgePoint interest rates exceed Home Trust's interest rates, the Home Trust loan was a fixed term loan of one-year secured by a first mortgage on real property. There is no evidence that other lenders were willing to loan against the Property or Chadwick’s SAB and tort claims.

[62] From the perspective of the borrower, Chadwick required additional funds to close the purchase of the Property and for renovations, in circumstances where the SAB claim had not yet settled. He obtained a conventional mortgage which was secured by a first mortgage over the Home, but he still required more financing. As he had no other security or source to repay an additional loan, he needed a loan which the lender could not call, until he received his “damages”. In short, he needed a litigation lender such as BridgePoint, which would provide a loan and not require payment until settlement or an award. The Loan Agreements met Chadwick’s requirements.

[63] The Applicants assert that Mr. Grillone ought to have requested an advance from the SAB insurer or tortfeasor on any “damages”, rather than obtain a loan from BridgePoint. However, there is no evidence as to whether this was a realistic possibility. There are no details of if, when or how this would be done. There was, for example, no evidence that either the SAB insurer or tortfeasor was prepared to make an advance in this case and, if so, on what terms. On the record before me, there is no evidence to establish that Chadwick had any realistic option of obtaining a loan other than from a litigation lender like BridgePoint.

[64] In my view, given Chadwick’s circumstances, the Loan Agreements were not only fair but the only means by which Chadwick could access the needed additional funds. These loans met Chadwick’s circumstances and reflected the risk that BridgePoint undertook in advancing the loans.

[65] The risk of compounding interest is at the crux of the concern in this case. In that regard, this case is somewhat atypical from what was anticipated when the UTRA was enacted. As Justice Judson pointed out in Barfried Enterprises, it was the hidden charges and bonuses in loan agreements that were the predominant concerns when applying the UTRA, not the interest. As he put it: “In most of these unconscionable schemes of lending the vice is in the bonus”: at p. 575.

[66] In this case, the “cost of the loan” outstrips the principal ten-fold in circumstances where the whole purpose was to provide Chadwick a home which, if the loans are enforced, he will surely lose. These are unfortunate circumstances, which must be considered when one considers all the circumstances. However, as found in Steinberg, the risk of delay was addressed in the loan agreement by the payment of interest. In the circumstances, the cost of the loans is the natural by-product of the compounding interest. There were no hidden fees or bonuses in this case. I cannot conclude the “cost of the loan” is excessive when the cost merely follows the clearly stipulated terms of the Loan Agreements.

[67] As I note below, I do not find the loans were “harsh and unconscionable”. Had I done so, the “cost of the loans” may well have been seen in a different light. In this regard, the elements of the test in McPherson are not watertight compartments.

[68] This then brings me to whether the loan was “harsh and unconscionable”. What is meant by “harsh” has not received much consideration. Rather, the courts have addressed “harsh and unconscionable” as one concept.

[69] The test in McPherson refers first to whether “the terms are very unfair or that the consideration is grossly inadequate”: at para. 9. In my view, I have addressed the issue of whether the terms are unfair. As I noted above, I do not find the terms of the loans to be unfair. When considering whether the consideration is grossly inadequate, as noted, this is not a case of hidden fees. Rather, it is a case where interest compounded due to the delay in settling the SAB and tort claims, a risk reflected in the Loan Agreements. I do not see the consideration as being “grossly inadequate”. As I have already articulated, the consideration reflects the terms of the agreement which to paraphrase Milani were “wise” from the perspective of BridgePoint and “fair” to the Applicants given their circumstances.

[70] The next ground in McPherson requires the borrower to “show that there was an inequality of bargaining power between the parties and that one of the parties took advantage of this”: at para. 9. This is the principal ground relied upon by the Applicants. Both parties referred to the equitable doctrine of unconscionable contractual dealings when discussing this element of McPherson.

[71] The equitable doctrine of unconscionability has recently received renewed attention because of the Supreme Court of Canada’s decision in Uber Technologies Inc. v. Heller, 2020 SCC 16. Both parties in their submissions dealt with the test in Uber Technologies Inc. In Steinberg, when referring to Uber Technologies Inc. and the doctrine of unconscionability, the Court in passing said, that it was “leaving aside the issue of how the doctrine applies to loan agreements”: at para. 12.

[72] Clearly the UTRA provides its own regime for addressing when loan agreements may be set aside where there is an absence of “informed consent or in circumstances of unequal bargaining power”: Milani at para. 22. Given the legislature has enacted statutory provisions to address lending agreements, any analysis must address the actual wording of s. 2 of the UTRA. Past cases have relied on the common law of unconscionability to inform what is “harsh and unconscionable” in s. 2 (see for example Ekstein and Adams, although these cases applied the test for “unconscionability” as it then was in Ontario, but which has now been modified by Uber Technologies Inc.: paras. 79-82). Both counsels relied on Uber Technologies Inc. in argument to define the parameters of unconscionability. I accept that the guidance in Uber Technologies Inc. is instructive and, provided the wording and scheme of the UTRA is not supplanted, can be seen as authoritative.

[73] The Applicants’ argument proceeds on the basis that there was no independent legal advice which, given the circumstances, ought to have occurred. It is asserted that, as a lender, BridgePoint had the obligation to ensure there was independent legal advice for the Borrower. In particular, the Applicants assert that Chadwick was in a vulnerable state because of his injuries and that his vulnerability imposed a higher duty on BridgePoint. They point out that the risk to Chadwick was significant because the loans were needed for his home, which would be at risk if the loans could not be re-paid and therefore legal advice was imperative. Further, it is suggested that Joseph was not terribly sophisticated, which enhanced the duty on BridgePoint, who had not taken the time to speak with either Joseph or Chadwick. As for Mr. Grillone, it is suggested that he may have either taken or at least failed to account for some of the loan proceeds, which creates a conflict of interest. It is also suggested that he was compromised either because he had used BridgePoint in the past or had been introduced to BridgePoint by his brother-in-law.

[74] BridgePoint responds by stating that Joseph was the legally appointed attorney pursuant to the Substitute Decisions Act, 1992, SO 1992, c 30 and that he had the assistance of legal counsel. A term of the Loan Agreements specifically acknowledged that the borrower received independent legal advice. BridgePoint states that there was no reason for it to look behind the solicitor client relationship at the time the loans were entered into between the parties. Moreover, there is no evidence that Mr. Grillone misappropriated funds, or that he was in any sort of conflict.

[75] Ordinarily, a party may negotiate and bargain in their own self-interest. The equitable doctrine of unconscionability may apply to impose a duty on one side to be more vigilant about the interest of the other contracting party. In Uber Technologies Inc. v. Heller, 2020 SCC 16, para 64, the Supreme Court affirmed a two-part test for assessing whether a contractual bargain is unconscionable. The Court described the test as follows:

[64] In Norberg, La Forest J. described proving the elements of unconscionability as “a two-step process”, involving “(1) proof of inequality in the positions of the parties, and (2) proof of an improvident bargain” (p. 256). The concurring judgment in Douez v. Facebook Inc., 2017 SCC 33, followed a similar approach in a case involving a standard form consumer contract [6]:

Two elements are required for the doctrine of unconscionability to apply: inequality of bargaining powers and unfairness. Prof. McCamus describes them as follows:

... one must establish both inequality of bargaining power in the sense that one party is incapable of adequately protecting his or her interests and undue advantage or benefit secured as a result of that inequality by the stronger party. [Emphasis deleted; para. 115.]

[65] We see no reason to depart from the approach to unconscionability endorsed in Hunter, Norberg and in Douez. That approach requires both an inequality of bargaining power and a resulting improvident bargain.

[76] The Supreme Court defined an inequality of bargaining power as existing “when one party cannot adequately protect their interests in the contracting process”: Uber Technologies Inc. at para. 66. This can occur where there is a disadvantage that “compromised a party’s ability to understand or appreciate the meaning and significance of the contractual terms, or both”: Uber Technologies Inc. at para. 67. This inequality in bargaining power may exist where one party does not have the cognitive ability to understand the contractual terms: Uber Technologies Inc. at para. 71. The Court indicated that “what matters is the presence of a bargaining context ‘where the law’s normal assumptions about free bargaining either no longer hold substantially true or are incapable of being fairly applied’”: Uber Technologies Inc. at para. 72. The Supreme Court stated that the doctrine of unconscionability was not limited to cases where the stronger party knowingly took advantage of the weaker party’s vulnerability and explained that “a weaker party, after all, is as disadvantaged by inadvertent exploitation as by deliberate exploitation”: Uber Technologies Inc. at para. 85.

[77] Much of what is discussed above is consistent with the cases that have addressed s. 2 of the UTRA, as it relates to either the inequality of bargaining or whether the borrower had “given a free and valid consent”. For the arguments presented to me, the guidance in Uber Technologies Inc. is consistent with the thrust of the case law relating to the UTRA.

[78] The presence of independent legal advice is often recognised as ameliorating the inequality that might exist between parties with differing sophistication and bargaining strengths. In Uber Technologies Inc., the Supreme Court described it this way: “Independent advice is relevant only to the extent that it ameliorates the inequality of bargaining power experienced by the weaker party” at para. 83.

[79] The Applicants raise several factual grounds that they assert establish that Mr. Grillone was in a conflict and not able to provide independent legal advice. In my view, the factual foundation for these arguments is not adequately proven.

[80] There is no question that Chadwick was highly vulnerable. His need for a modified home was real and the risk to losing that home if the BridgePoint loans went unpaid was real. However, Joseph was his legally appointed Attorney for Property. No one has questioned Joseph’s suitability in this role, including the PGT. As the legal representative for Chadwick, Joseph had the power to do anything that Chadwick could do if capable: s. 7(2), Substitute Decisions Act. Joseph was legally capable of executing the Loan Agreements on behalf of Chadwick. If there is an issue regarding whether there was free and valid consent in executing the Loan Agreements, it is Joseph’s consent that is at issue. In the circumstances, there was no requirement as asserted by the Applicants that the PGT be involved at that stage. Indeed, in the PGT Report, the PGT expressly stated it had “no issues with respect to the execution of the Loan Agreements and …Directions … by Joseph” and that he had the power to execute those documents as the Attorney for Property for Chadwick.

[81] Joseph states that he relied exclusively on Mr. Grillone in signing the Loan Agreements. Undoubtedly, it is true that he relied on Mr. Grillone, but he is vague on what he or Mr. Grillone said or did when deciding to execute the Loan Agreement. For example, he cannot say whether he read the Loan Agreements. The rates of interest were not hidden terms of the Loan Agreements and were easily ascertainable had Joseph read the Loan Agreements, which any prudent borrower would have done.

[82] In his affidavit, Joseph says nothing about the advice given by Mr. Grillone in respect of the loans or the risk associated with the loans. Nonetheless, he says he could have asked Mr. Grillone anything, but no questions were asked regarding the Loan Agreements, the interest, compounding, or the consequences of a breach of the Loan Agreements. While he states that he did not appreciate the impact of compounding interest, he personally received monthly statements reflecting the mounting interest. He says he called Mr. Grillone who told him not to worry. In my view, Joseph understood and appreciated the impact of the compounding interest. I do not accept that Joseph lacked the sophistication to appreciate the impact of compound interest or its impact on the amounts owing.

[83] It is noteworthy that the Applicants’ lawsuit against Mr. Grillone makes no allegation regarding Mr. Grillone being negligent in his advice regarding the loans or Loan Agreements, in not advising on the impact of interest, or in advising Joseph to execute the Loan Agreements. The evidence does not persuade me, and the Applicants have not established, that Mr. Grillone was deficient in his advice respecting the loans at the time Joseph executed the Loan Agreements.

[84] It is alleged, as already noted, that Mr. Grillone failed to advise the Applicants that they could look to the SAB insurer or tortfeasor to advance funds for the purchase of the Property. As referenced earlier, there is no evidence on how, on what conditions, or even the likelihood that Chadwick would obtain an advance from a SAB insurer or tortfeasor to buy a home. Like the allegation of negligent advice above, the failure of Mr. Grillone to access SAB insurer funds for the purchase of the home is not part of any claim by the Applicants against Mr. Grillone. In my view, the evidence in this case is insufficient for me to accept the premise that the SAB insurer or tortfeasor would advance funds or that Mr. Grillone was negligent in this regard.

[85] The Applicants assert that Mr. Grillone could not provide independent legal advice because he had a conflict of interest that undermined his independence. The Applicants raise several grounds in this regard. They assert that even if BridgePoint was unaware of the conflict, the conflict undermines the free will of the Applicants to agree to the Loan Agreements and it must be set aside. However, I do not find that the Applicants have established that Mr. Grillone was in a conflict of interest.

[86] First, because the Applicants cannot reconcile $45,000 in loan advances in Mr. Grillone’s financial documents, the Applicants’ counsel speculate that one “can only presume that these amounts were converted to fees or that Mr. Grillone otherwise absconded with those funds.” There is no explanation by Mr. Falconeri how he arrives at this conclusion. Joseph claims he did not receive all the funds from BridgePoint. As mentioned, the ledgers from his law firm show that Mr. Grillone received reimbursement for expenses related to the Property purchase which he appears to have paid from his own funds pending receipt of funds from BridgePoint. This adequately explains why Joseph claims he did not see all the money. Mr. Grillone was not called as a witness to explain the accounting. On the evidence before me, I cannot conclude that Mr. Grillone improperly converted or absconded with any money.

[87] It was further suggested that Mr. Grillone’s brother-in-law may have made the introduction to BridgePoint and, if this is so, then this gives rise to a conflict of interest. But how and why this understanding arises is not explained. Even the name of the brother-in-law is not mentioned. As mentioned earlier, the evidence is insufficient to establish that the brother-in-law was involved in these transactions.

[88] Similarly, it was further submitted that Mr. Grillone had used BridgePoint for loans in the past for both his practice and his clients’ needs, which the Applicants state creates a conflict of interest. However, there is no evidence that Mr. Grillone was to receive any payment or other benefit from BridgePoint for the provision of the loans to Chadwick. In my view, prior dealings with a litigation lender, without more, does not establish a conflict of interest.

[89] Finally, as a general proposition, the Applicants say that BridgePoint as a lender was obligated to insist that Joseph obtain legal advice from someone other than Mr. Grillone. As discussed, there is no evidence of a conflict and, as such, there were no circumstances that would lead BridgePoint to suspect there was a conflict of interest with Mr. Grillone providing advice to the Applicants on the loans. Nonetheless, the Applicants referred me to two cases which they rely upon. In my view, the cases cited by the Applicants are distinguishable.

[90] In Bertolo v. Bank of Montreal, a widow with little education was persuaded to provide a promissory note and mortgage as part of the security for a loan to her son who was starting a restaurant. The bank required her to obtain independent legal advice. She was directed to speak with the Bank’s solicitor, who also acted for the son. That lawyer sent her to another lawyer at his firm for independent legal advice. In the circumstances, the court found that the bank’s counsel’s firm providing the advice did not qualify as independent legal advice. That is not this case. Mr. Grillone acted solely for the Applicants and did not act for BridgePoint.

[91] Similarly, in Gnys v. Nurbutt, 2016 ONSC 2594, the lawyer providing the advice was in a conflict because the lawyer advising the borrower neglected to advise that the lender was his wife. It is easy to see how advice in such circumstances would not be considered independent. That is not this case.

[92] In this case, Mr. Grillone was independent of BridgePoint. There is no reason BridgePoint, or anyone observing the transaction, should have thought that the Applicants were not freely entering these loan agreements with the assistance of counsel.

[93] In the end, I do not find there is an inequality of bargaining power as set out in the first part of the test in Uber Technologies Inc. Had I found an inequality of bargaining power, I would have had to consider whether the inequality led to an improvident bargain. In assessing whether a bargain is improvident, I agree with Justice Centa where he observed in Sanders v. Canada’s Choice Investments Inc., 2023 ONSC 195, para 74:

The terms of the agreement are to be assessed in light of the surrounding circumstances at the time of contract formation including the market price and the position of the parties. The court should consider, for example, if the price of goods or services in the contract departs significantly from the usual market prices: Uber, at paras. 73 to 79.

[94] I have already found that the terms of the loans were fair having regard to the circumstances and risks involved. The terms of the loans are consistent with those in Steinberg and there was no evidence that better terms were available, let alone that these terms departed from the usual market price for loans secured by proceeds of litigation. In the circumstances, I do not find the bargain to be improvident.

[95] Returning to the wording of the UTRA, I conclude that having regard to the circumstances and risks associated with the loans, the loans were not “harsh and unconscionable”.

[96] Had I found that the loans breached the UTRA, the reasonable result would have been to adjust the amount owing. It would not have been a reasonable or fair result to wholly invalidate the loans without providing compensation to BridgePoint for the principal and loss of use of that principal over ten years. As such, if the loans breached s. 2 of the UTRA, I would not have acceded to the request of the Applicants to “wholly set aside” the Loan Agreements. Given the way the case was argued, I am unable to provide any further comment or assistance as to what might have been a reasonable revision or alteration to the Loan Agreements had I found the Loan Agreements violated the UTRA.

Conclusion

[97] This is indeed an unfortunate circumstance. However, the basis for relief under the UTRA has not been established. Accordingly, I dismiss the application.

[98] The parties have agreed that costs in the amount of $26,000 should be awarded to the successful party. Accordingly, I award the Respondent $26,000 in costs to be paid by the Applicants.

Sean F. Callaghan