Plaintiff Loan Financing in Canada

Posted By Michael Shortt, Sami Yasin – Feb. 6, 2011

Almost one year ago, in Bourgoin v Ouellette [(2009), 343 NBR (2d) 58, 177 ACWS (3d) 318], a New Brunswick judge awarded a very interesting kind of legal cost  – interest on a loan the plaintiff had taken out to finance his lawsuit. This was the first time in Canada that interest has been awarded as a cost. Effectively, this shifts some of the burden of paying for these loans from the plaintiff (who would normally see the interest deducted from the settlement) to the defendant (who is now responsible for these as part of the plaintiff’s costs).

Two weeks ago, the MJLH sat down with Hubert Seamans, the president of Seahold Investments, to explore the burgeoning field of plaintiff financing loans in Canada. The following is a transcript of the discussion that ensued:

MJLH: How did you come to be in the plaintiff financing business?

Seahold: I’ve been an entrepreneur since I was 24 and I was involved in many small businesses early in my life. Starting in 1983 I went in to politics, and was Minister of Municipal affairs in the McKenna government in New Brunswick. After leaving politics, I realized there wasn’t a lot of job demand for ex-cabinet ministers [laughs]. So I went in to business brokering, helping people buy and sell businesses. In the course of my brokering I ran across a guy who was involved in plaintiff loan financing. But he was charging a very high interest rate, in fact just below the legal maximum of 60% annually. I knew a fair number of personal injury lawyers and so I talked to them about this guy, and they felt that he was charging exorbitant interest rates. They encouraged me to go in to the plaintiff loan business and put it on a more equitable footing for their clients. So I started lending money to their clients at about half the previous rate, they told other lawyers about my business and 11 years later, we’re doing it coast to coast.

MJLH: How do you decide which cases your firm will take?

Seahold: Well, first off, we only lend to cases that are proceeding on a contingency fee basis. We do this because it is a vote of confidence by the lawyer in the merits of the case, and also because contingency fee cases mean that the client’s financial needs are manageable, and thus something we can help them with. Our goal in lending is to help clients resist the financial pressure to settle quickly and for less money than they deserve.

MJLH: How do plaintiffs find out about your services?

Seahold: We never market to plaintiffs. Instead we approach law firms and inform them of our services. Then, at the firm’s discretion, they can notify their clients about our loans if things get tough for their clients financially.

MJLH: What is the process for plaintiffs to get a loan?

Seahold: We try to remove as much work from the law firm as possible by conducting most of the assessment ourselves and limiting the amount of their time we take up. The client fills out a form and answers 15-20 questions, mostly geared towards the nature of the accident and the size of their financial needs. We then call the law firm back, confirm the details of the client’s story and make a decision.

MJLHL: When you say “accident” does this mean your firm deals mostly with motor vehicle cases?

Seahold: Absolutely. That would be our typical case. We also do some slip-and-fall accidents and some medical malpractice, but of the 500-1000 cases a year we take, 95% of them are road accidents.

MJLH: How do you determine the size of loans you make to plaintiffs?

Seahold: We try to minimize the size of the loan in order to keep clients’ interest payments low, since a $10,000 loan at our interest rates doubles every two and a half years, and the average case length is also about two and a half years. We also try to keep our loan to a maximum of 20% of the size of the final settlement, including both principal and interest.

MJLH: You mentioned that you only take cases that are on a contingency fee basis; if so, then what do plaintiffs spend the money on?

Seahold: The money we lend clients goes to feed kids and pay the rent. A small amount of it may go towards pre-trial disbursements necessary to get these cases to trial, but those are not the main reasons clients need money. This is really an access to justice issues, since otherwise, poor plaintiffs are forced to settle because they’ve been injured, can’t work and run out of money for the essentials of life. That’s where we come in.

MJLH: What are your mechanisms for determining interest rates?

Seahold: We have a flat interest rate for all files. We set that rate when I opened the business eleven years ago and have stuck to it ever since. It’s the same as Sears Canada: 2.4% per month, compounded monthly, which works out to 32.97% per year. Some of our competitors charge different rates on different files, but that’s not our business model.

MJLH: In Burguoin the judge considered whether your interest rate was a reasonable one, and determined that it was. On the other hand, what do you say to those who argue that a 32.97% annual rate is simply too high?

Seahold: Our interest rate is a reflection of the cost of doing business, and I wish it was a lot lower. One problem is the inherent risks of this industry, and we lose about 25% of revenue every year due to bad debts. Another fact is that we raise funds primarily from private investors. This is obviously a business that requires a large cash flow to finance, but so far the banks are unwilling to make large loans to companies like ours. We do have a bank line of credit, but probably 80% of our financing comes from private investors. And private financing is far more expensive than bank financing. When I started we were paying 18% to private investors. We recently moved to 12% and then down to 10%, but that’s still far higher than the interest rates most businesses pay to raise funds. Our interest rates reflect these two facts.

MJLH: Continuing on that theme, why do you think big banks haven’t gotten in to this area in the same way that the American banks have?

Seahold: This is a fairly new field in Canada. We were the first firm to do it nationally and we’ve only been around for 11 years. It’s a whole new way of lending niche and the volumes aren’t established here yet. Our average loan is $15,000. We have a few loans approaching $200,000 but that’s a case that drew on for years and years. We typically limit loans to $75,000 per case.

MJLH: Have you ever thought about financing law firms directly?

Seahold: We’ve considered doing that, and at least one of our competitors does that, but we don’t do that. It’s important to note that financing law firms does not mean that the firm would then lend the money to their clients – that kind of loan is against professional codes of conduct. Money leant to the law firms would be used bridge gaps for small firms that are working on a contingency fee basis, but need money to make ends meet between trials.

MJLH: What about financing class actions?

Seahold: We don’t finance class actions for two reasons. First, it’s far more difficult to evaluate the complexity of a class action, as opposed to a motor vehicle accident or a slip-and-fall accident. Second, it’s far more expensive, with costs ranging from $150,000 to $1 million worth of funding. We have a limit of $75,000 per case. But one of our competitors does class actions.

MJLH: What role does Seahold Investment play in the evolution of the case? Either in trial tactics, settlement offers or otherwise?

Seahold: Absolutely none. We do not get involved in the case at all. The only time we do is if they’re in a settlement conference and there may not be enough funds to cover the loan. In this case the lawyers will call us and negotiate what can be achieved as far as a payout goes.

MJLH: What kind of action is taken in that case?

Seahold: We recently have started a non-recourse system, so that if it turns out there aren’t going to be enough funds to cover the loan, the client is not going to be responsible for covering it once we agree on a specific amount.

MJLH: So essentially they pay what they can at that point and everything else is written off?

Seahold: Yes. Not a preferred option for anybody, but that’s the way the real world works. This is a high-risk lending sector. There’s a number of reasons why we might tend to lose money on an account, but we don’t tend to lose too many accounts in a given year. Maybe a dozen or so. Less than 20, generally, per year. But they tend to be large amounts. Like $100,000 or $50,000, from accounts that are very old, typically if clients have been seriously injured and needed a long time to recover. Time is our enemy in the lending business.

MJLH: What collateral is put up by the plaintiffs in your cases?

Seahold: There isn’t any. We take clients who do not have enough assets to be eligible for regular bank loans. We are lenders of last resort for people who cannot access the regular banking system. We deal a lot with young people, single parents… people who do not have outside sources of support.

MJLH: What happens when the legal costs and the cost of the loan are so large that they consume almost all of the settlement – say $50,000 out of a $52,000 settlement?

Seahold: This is about the only time we are ever involved in the settlement negotiations in any capacity. If a lawyer calls me to say “We received a $100,000 settlement negotiation, but the client owes me $40,000 and they owe you $40,000, so the client would only get $20,000. They aren’t willing to settle for $20,000, but I think this is the best offer we’re going to get.” At that point we negotiate with the lawyer to see whether they will reduce their fees, and we reduce our loan, and try to find enough financial room for the client to be happy with the best offer.

MJLH: Speaking of access to justice, what do you say to critics who point out that access to justice in this case runs in only one direction – you can make money from a plaintiff, but not from a defendant. What do you think about that?

Seahold: We only deal with plaintiffs in these cases. The defendants our clients face are typically multi-million dollar corporations like insurance companies or hospitals. They’ve got lots of money for legal fees, their own teams of lawyers. This is a David and Goliath situation, it’s as simple as that. We’re helping David get a shot at winning here. If we had equal access to justice in this country, I wouldn’t have a business and I’d be happy about that. But we don’t. Under the current system, offers typically get bigger the closer you get to trial, and since rich people can last longer on their assets, they can hold out for larger settlements than poor people. This helps the average Canadian get a larger settlement.

MJLH: If a lot of your clients are involved in motor vehicle accidents, doesn’t that take Goliath out of the picture, so that it’s one average Canadian against another?

Seahold: Goliath is the insurance companies. The insurance companies are the ones being sued, and they’re running a business. So they try to minimize their losses, while the plaintiff is there to maximize their settlement. The insurance companies have deep pockets and so they have no time pressure to settle these claims generously early on. The plaintiffs are the ones trying to feed the kids and pay the rent, so they are under tremendous pressure to settle the case early. This takes some of the pressure off of the plaintiff. The insurance companies have historically made low-ball initial offers, and in many cases these offers have been accepted by people who couldn’t afford to wait for a better deal closer to trial. Our service allows them to hang on.

MJLH: What do you think of the argument that loans like these encourage people to bring frivolous lawsuits before the courts and flood our already over-burdened system?

Seahold: I don’t see that as an issue here, as compared to the United States, since the provincial governments are regulating that problem directly. Furthermore, we don’t want frivolous claims to go forward any more than the courts would, since those cases would get thrown out and we’d lose our money. I’d also point out that we come in to the picture after the case is already underway, so I don’t think we have any influence in the decision to start the case at all. We’re there to help people who are already in the legal system but having trouble staying afloat financially. As I said before, we’re not out there drumming up business in the community.

MJLH: What regulatory framework does your company fall under?

Seahold: We have to be compliant with securities regulations in each province because we have investors in each province, and we have investors coast-to-coast. Because we have an investor pool we are compliant with securities regulation in every province.

MJLH: How does your company deal with appeals, both by the plaintiff and by the defendant?

Seahold: We have no control or influence over the decision to appeal, obviously. Appeals are also very rare for us, since most of our cases are settled before trial. 85-90% of these cases do not go to trial. Only one or two cases had any consideration about an appeal, but neither one of them moved forward. We would probably evaluate the case and if the lawyer felt we could win on appeal, we would extend additional financing.

MJLH: How does Seahold decide which firms and individual lawyers to form partnerships with?

Seahold: Our relationship with the lawyer is critical, since we’re depending heavily upon the lawyer’s judgement about the case’s likelihood of success. We’re looking to deal with pre-eminent firms, people with a good track record. We’re looking to deal with lawyers whose primary area of practice is personal injury. If they’re only doing it a small percentage of their practice, we’re not as interested.

MJLH: Do lawyers get any incentives for referring clients?

Seahold: No, absolutely not.

MJLH: Some have argued that this kind of lending introduces a conflict of interest in to the lawyer-client relationship. What do you say to that?

Seahold: Actually, the history of these loans is that many lawyers were lending money to their clients, which is a clear conflict of interest [and banned under professional codes of conduct in all provinces – MJLH]. When we started 11 years ago, several of the law societies across the country had taken a stand on this issue, and were campaigning to end lending by lawyers to their clients. So law firms that had been doing this started looking for other ways to help their clients make ends meet, and we arrived at the right time to provide this service. There was a conflict, but it was because lawyers were lending. We helped remove that conflict from the equation.

MJLH: … because you aren’t involved in the conduct of the trial itself?

Seahold: Exactly.

MJLH: Do you ever do Workers’ Compensation cases?

Seahold: Unfortunately we did a few. And don’t intend to do any more [laughs]. We lost our money every time. The nature of the WCB system is a long, complex, drawn-out affair that rarely, if ever, resulted in a sizeable payout. There is no opportunity for a business case there, because it takes a long time, so the cost is high, but the payouts are uncertain and fairly small, and paid out on a monthly basis. So there’s no room to lend money out of their monthly income.

The Supreme Court of Canada Splits in Reference re Assisted Human Reproduction Act

Posted By Chad Bass-Meldrum – Jan. 22, 2011

Just one month ago today, on 22 December 2010, the Supreme Court of Canada rendered its long-awaited decision in Reference re Assisted Human Reproduction Act, 2010 SCC 61—a controversial case concerning the constitutionality of several sections of Parliament’s Assisted Human Reproduction Act, SC 2004, c 2. At issue in this appeal from the Quebec Court of Appeal was whether the impugned provisions (namely ss 8-19, 40-53, 60, 61, and 68) of the Assisted Human Reproduction Act were in pith and substance a provincial matter of health or a federal matter of criminal law, and thus whether the impugned provisions exceeded the legislative authority of Parliament under s 91(27) of the Constitution Act, 1867. In responding to this issue the Court split 4-4-1: McLachlin CJ and Binnie, Fish, and Charron JJ reasoned that the legislation was valid under the federal criminal law power, while LeBel, Deschamps, Abella, and Rothstein JJ opined that the impugned provisions related to the provincial power over hospitals, property and civil rights as well as matters of a merely local nature and were thus ultra vires Parliament. Ultimately, Cromwell J. (a rookie member of the Court) split the Supreme Court of Canada by allowing the appeal in part, thereby giving everyone a piece of the federalism pie.

For the Court’s written judgment see: <http://scc.lexum.umontreal.ca/en/2010/2010scc61/2010scc61.html>.

The Supreme Court of Canada Splits in Reference re Assisted Human Reproduction Act

Posted By Chad Bass-Meldrum – Jan. 22, 2011

Just one month ago today, on 22 December 2010, the Supreme Court of Canada rendered its long-awaited decision in Reference re Assisted Human Reproduction Act, 2010 SCC 61—a controversial case concerning the constitutionality of several sections of Parliament’s Assisted Human Reproduction Act, SC 2004, c 2. At issue in this appeal from the Quebec Court of Appeal was whether the impugned provisions (namely ss 8-19, 40-53, 60, 61, and 68) of the Assisted Human Reproduction Act were in pith and substance a provincial matter of health or a federal matter of criminal law, and thus whether the impugned provisions exceeded the legislative authority of Parliament under s 91(27) of the Constitution Act, 1867. In responding to this issue the Court split 4-4-1: McLachlin CJ and Binnie, Fish, and Charron JJ reasoned that the legislation was valid under the federal criminal law power, while LeBel, Deschamps, Abella, and Rothstein JJ opined that the impugned provisions related to the provincial power over hospitals, property and civil rights as well as matters of a merely local nature and were thus ultra vires Parliament. Ultimately, Cromwell J. (a rookie member of the Court) split the Supreme Court of Canada by allowing the appeal in part, thereby giving everyone a piece of the federalism pie.

For the Court’s written judgment see: <http://scc.lexum.umontreal.ca/en/2010/2010scc61/2010scc61.html>.

Vers une levée de l’anonymat pour les donneurs de sperme?

Posted By Lise Bérichel – Jan. 15, 2011

              Le droit d’un enfant né grâce à un don de sperme de connaître ses origines surpasse t’il le droit du donneur à conserver son anonymat ? Telle est la question récemment soulevée par l’affaire Pratten qui relance le débat sur l’anonymat des donneurs.
Olivia Pratten a présenté sa cause devant la Cour Suprême de Colombie Britannique le 25 octobre 2010. Elle poursuit la province pour que le British Colombia’s adoption Act soit déclaré inconstitutionnel  parce qu’il confère aux enfants adoptés des droits supérieurs à ceux des enfants nés à l’issue d’une insémination artificielle1. En effet, la province avait revu sa législation en 1996 afin que les enfants adoptés aient le droit de connaître l’identité de leurs parents biologiques mais les enfants nés à l’issue d’un don de sperme ne bénéficient pas de ce droit.
Olivia Pratten sait qu’elle ne pourra obtenir d’informations sur son donneur, le registre les contenant ayant été détruit au cours des années 1990. La loi fédérale sur la procréation assistée adoptée en 2004 interdit désormais la destruction de ce type de registres mais elle garantit également le droit du donneur à maintenir son anonymat2.
Si le juge statue en faveur de Melle Pratten, il placera alors le Canada dans la lignée des pays comme la Suède (1984), la Suisse (1992) ou le Royaume Uni (2005) qui ont déjà levé l’anonymat des donneurs.
Cet arrêt qui oppose les intérêts tout aussi fondamentaux des donneurs et ceux des enfants nés à l’issue d’insémination artificielle soulève de nombreuses questions et invite à réfléchir aux conséquences majeures que la levée de l’anonymat des donneurs de sperme auraient sur l’ensemble de la société.

Les intérêts fondamentaux mis en cause.
Dans un premier temps, l’obligation d’anonymat protège deux principes essentiels. Le premier est le respect dû au corps humain manifesté par l’indisponibilité et la non commercialisation de ce dernier. Il pourrait être avancé que ce principe est essentiellement protégé par la gratuité qui s’impose au don de sperme. Mais de nombreux sociologues ont démontré le lien étroit qui existe entre gratuité et anonymat, concluant que l’un n’existe pas sans l’autre (ce point est détaillé dans la seconde partie de cet article).  Le second principe protégé par l’obligation d’anonymat est l’oblativité du don, c’est à dire l’abandon désintéressé sans risque de retour. Ainsi, l’anonymat détache en pratique l’offre de la demande en empêchant le don dirigé. Et il contribue symboliquement au processus de dépersonnalisation, clef de la décontractualisation de l’échange3.
Ensuite, l’obligation d’anonymat permet de garantir le respect de la vie privée du donneur et de sa famille protégeant ces derniers de l’apparition soudaine d’autres descendants. En ce sens, l’obligation d’anonymat garantit les droits fondamentaux du donneur qui n’aurait peut être pas opéré ce don altruiste si cet anonymat ne lui avait pas été garanti. En effet, l’expérience des pays ayant modifié leurs législations à ce sujet est significative. Qu’il s’agisse de la Suède, de l’Australie ou du Royaume Uni, le nombre de donneurs a chuté de manière importante après l’entrée en vigueur des législations levant l’anonymat des donneurs.
Cependant, si l’anonymat garantit les droits du donneurs, il met en péril certains droits fondamentaux de l’enfant né de ce don. L’article 7 de la Convention des droits de l’enfant (1989) proclame le droit à connaître, dans la mesure du possible, ses parents et à être élevé par eux4. L’esprit de cet article semble d’avantage concerner le droit à avoir des parents que le droit à connaître la vérité biologique de sa filiation. Mais ce texte n’étant guère explicite sur la question de l’origine génétique,  il est possible de considérer qu’il renvoie au droit fondamental de l’individu d’accéder à son identité d’origine. Or l’obligation d’anonymat prive nécessairement l’enfant de ce droit.
Il importe également de s’interroger sur la protection du droit à la vie privée et à l’intimité de l’enfant issu de l’insémination artificielle. En effet, la puissance publique s’immisce en quelque sorte dans la vie privée de l’individu issu du don, puisqu’elle détient, au nom de la traçabilité sanitaire, des informations identifiantes sur une partie de son origine auxquelles il ne peut avoir accès. Cette partie de son origine n’étant pas publique, à la différence de la filiation juridique, elle est du ressort de sa vie privée.
Enfin, il convient de s’interroger sur le droit à l’égalité des enfants issus d’une insémination artificielle. Le juge pourrait, dans le cas de l’affaire Pratten, avancer l’argument d’un droit à l’égalité entre les enfants adoptés et les enfants issus d’insémination artificielle pour déclarer inconstitutionnel le « British Colombia’s adoption Act ».
S’il est indispensable d’interroger en amont, les différents intérêts fondamentaux mis en jeux dans ce débat il est également fondamental de mesurer les conséquences qu’une décision en faveur de la levée de l’anonymat des donneurs de sperme entrainerait pour la société dans son ensemble.

Des conséquences à ne pas sous-estimer

Les deux principes énoncés ci dessus que protège l’obligation d’anonymat concernent la donation d’organes et de tissus en général. Mais une fois appliquée au don de gamètes, cette obligation intervient pour protéger un troisième principe : le projet parental. Un modèle social qui concerne les représentations sociales de la parenté, de la filiation et de l’origine est ainsi affirmé. L’obligation d’anonymat pose le projet parental comme seule vérité de la parenté, à l’exclusion de tout autre lien. La parenté biologique est ainsi considérée comme inférieure à la parenté sociale. Cette vision du projet parental renvoie au souci humaniste de ne pas uniquement réduire l’individu à sa condition biologique et génétique. Il serait en effet dangereux de se focaliser sur la génétique. Comme le présentent les professeurs Angela Campbell et Robert Leckey, cela conduirait à dévaluer certains modèles familiaux à l’instar de ceux formés par des parents adoptifs ou par des parents qui ont recourt aux techniques d’insémination5. Alors qu’en réalité, ces parents contribuent en grande partie à la construction de l’identité de leur enfant. La condition génétique de l’homme est une part importante de son humanité mais cette dernière ne peut s’y réduire.
Ensuite, lever l’exigence d’anonymat pour le don de sperme pourrait entrainer un glissement néfaste d’une logique de don altruiste à une logique commerciale intéressée.
Dans son article Don de sperme : le lien entre l’anonymat et le bénévolat, G. David revient sur les travaux de sociologues s’étant intéressés au don afin de démontrer qu’un lien étroit et nécessaire existe entre l’anonymat et le bénévolat6. Le sociologue anglais Titmuss montrait par exemple, dans les années 1970, que le don désintéressé est indissociable de l’anonymat, aussi utile pour le donneur que pour le receveur, car une éventuelle connaissance réciproque ouvrirait la voie à des préférences, voire à des exclusions fondées sur des particularités ethniques, sociales ou religieuses. Le total anonymat du receveur par rapport au donneur et l’inverse constituent ainsi une préservation de leur indépendance. Par conséquent, revenir sur l’anonymat du don de sperme pourrait conduire à une évolution malsaine vers une logique de marché.
Enfin, il est important de considérer les problèmes tels que l’eugénisme ou autre magasinage génétique qui pourraient se poser sur le plan éthique. En effet, s’il devenait possible de connaître l’identité du donneur et donc l’ensemble de ses caractéristiques physiques voire même intellectuelles, il deviendrait envisageable pour les parents de choisir leur donneur afin de faire tendre le patrimoine génétique de leur enfant vers un certain « idéal ». Ceci conduirait bien entendu à des dérives dangereuses et inacceptables.
S’il est important de ne pas exagérer les conséquences auxquelles conduirait une décision en faveur de Melle Pratten, il est indispensable de les considérer de manière très détaillée.
Pour conclure, de nombreux droits fondamentaux étant en cause dans ce débat, il convient de se demander s’il est réellement du ressort des tribunaux de répondre à ces questions. Dans l’affaire Pratten, le procureur lui même affirme que des décisions politiques aux conséquences sociales majeures, du type de la suppression de l’anonymat pour les donneurs de sperme, ne devraient pas être édictées par les tribunaux.
_____________________________
Endnotes:
1 British Columbia’s Adoption Act, R.S.B.C. 1996, c.5.
2 Loi concernant la procréation assistée et la recherche connexe, L.C. 2004, c 2.
3 J. Guibert, E. Azria, “Anonymat du don de gamètes : protection d’un modèle social ou atteinte aux droits de l’homme ?” (2007) jgyn.2007.02.005.
4 Convention relative aux droits de l’enfant, 20 novembre 1989, RS 0. 107.
5 Angela Campbell, Robert Leckey, « Parentage is about more than DNA », The Globe and Mail (28 octobre 2010) en ligne :<http://www.theglobeandmail.com/news/opinions/opinion/parentage-is-about-more-than-dna/article1775470/email/>.
6 G. David, “Don de Sperme: le lien entre l’anonymat et le bénévolat” (2010) SALF et Springer-Verlag France.

The McGill Research Group on Health and Law presents l’évolution du droit de la procréation assistée: La bioéthique a la franéaise

Posted By The MJLH | RDSM Team – Jan. 5, 2011

The McGill Research Group on Health and Law will present its 4th Annual Lecture given by Frédérique Dreifuss-Netter, Justice of the first civil chamber of the Cour de cassation on assisted reproduction. The presentation will take place January 18, 2012 at 16h30 in room 312 NCDH.

Space is limited. Kindly RSVP to rghl.law@mcgill.ca.

Le RGHL présente la quatrième conférence annuelle en santé et droit au sujet de l’évolution du droit de la procréation assistée. Frédérique Dreifuss-Netter, conseillère à la première chambre civile de la Cour de cassation, présentera mecredi le 18 janvier, 2012 à 16h30, salle 312 NCDH.

Le nombre de participants est limité. SVP confirmez votre présence à rghl.law@mcgill.ca

For more information: http://www.mcgill.ca/channels/events/item/?item_id=212548