Interest on Disbursements Reduced by Registrar

Money sitting on table to emphasize the court costs by one partying incurring costs of another

Given the often expensive nature of legal proceedings, the question of whether one party will be responsible to pay the costs incurred by the other party can become highly contentious.

In CHANDI V. ATWELL, 2011 BCSC 1498 (“CHANDI”) [Decision of Registrar: reasons for judgment released on November 4, 2011], District Registrar Cameron was faced with an assessment of the Plaintiff’s costs in a personal injury action that settled for $900,000, plus taxable costs and disbursements. One issue the Registrar had to consider was the recoverability of financing costs incurred by the Plaintiff on disbursements.

The Registrar in CHANDI began his analysis by citing the holding of Master Young in MCCREIGHT V. CURRIE, 2008 BCSC 1751 that defendants will have an obligation to pay for a plaintiff’s costs associated with financing disbursements when (at para. 73):

(i)                 they are put on notice that a plaintiff will be incurring costs;

(ii)               the costs are “reasonable” and are relevant to the prosecution of the claim; and

(iii)               the defendant is in a position to pay for those costs but chooses not to do so.

Registrar Cameron also cited the following holding from MILNE V. CLARKE, 2010 BCSC 317 (at para. 74):

The law in British Columbia is that interest charged by a provider of services where the disbursement has been paid by counsel for a party is recoverable as is the disbursement. The interest charge flows from the necessity of the litigation. If the disbursement itself can be assessed as an appropriate disbursement, so also can the interest owing as a result of the failure or inability of a party to pay for the service provided.

After considering the above principle from MILNE V. CLARKE, Registrar Cameron declined to follow the analysis in BASI V. ATWAL (2010), Vancouver Registry No. M070135 (B.C.S.C.), a decision in which the Registrar found that the full amount of interest charged on a financed disbursement was recoverable.

Registrar Cameron held in CHANDI that allowing a party to recover the full cost of financing expenses could lead to uncertainty due to the potential fluctuation of interest rates (at paras. 72-73):

In his brief Mr. Harris properly conceded that I am bound by the decision of Mr. Justice Burnyeat inMILNE V. CLARKE. He urged me not to follow the decision of Master Bolton (sitting as Registrar) inBASI V. ATWAL that awarded the relatively high commercial rate of interest arguing that to do so would result in the potential for “wild swings in the interest rate” brought to bear by outside lenders from unconventional sources at high and fluctuating rates.  The amount charged to the Defendant, in such circumstances, would be the rate at which the Plaintiff’s lawyer is able to borrow. He went on to postulate that this would create considerable uncertainty and could result in a considerable increase in the cost of litigation.

While the current state of the law mandates that I make some allowance for the interest expense in my view I am not bound to award full indemnity for the amount of interest charged to the Plaintiff. I am not bound by BASI V. ATWAL and with the greatest of respect I decline to follow it.

While the holding in MILNE V. CLARKE that “if the disbursement itself can be assessed as an appropriate disbursement, so also can the interest owing as a result of the failure or inability of a party to pay for the service provided”, stresses the “appropriateness” or “reasonableness” of the disbursement, there does not appear to be anything in that judgment which precludes an application of the criteria of reasonableness to the interest itself.

The solution reached to this problem in CHANDI was to utilize a standardized interest rate (at para. 75):

In my view the Registrar should endeavour, wherever possible, in assessing the amount to allow for a specific type of disbursement to strive for consistency unless the application of that principle would work a real hardship or unfairness in a particular case. To attain that consistency I will make an allowance for disbursement interest based upon Registrar’s rates with the calculation of the total amount to be akin to the calculation of interest payable on special damages pursuant to the relevant provisions of COURT ORDER INTEREST ACT.

While such an approach allows for consistency in determining the amount of financing costs that will be recoverable, it will be interesting to see how the general discretion relating to costs is applied to the recoverability of financing costs so as to avoid potential “hardship or unfairness” in future cases.

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