Hubert Seamans, president of Seahold Investments Inc., at his office in MonctonCole Burston/The Globe and Mail
Luc Bourgoin doesn't remember the split-second that changed his life on a summer Sunday afternoon seven years ago.
The first-year forestry student was driving his 1990 Suzuki Sidekick along a rural highway in New Denmark, N.B., about 300 kilometres northwest of Moncton, on his way to a family dinner.
Another car, apparently trying to leave a parking lot, entered the roadway and clipped the Suzuki's back bumper. Mr. Bourgoin's car swerved out of control and rolled. He ended up on the pavement with a broken skull, a broken arm and two fractured vertebrae.
He sued the woman driving the other car in 2005 to seek compensation for his injuries, which left him unable to work. His lawyer told Mr. Bourgoin he would need tens of thousands of dollars up front to pay for the medical and accident-reconstruction experts needed to fight the case. The other driver's lawyers would be paid by her insurer.
Mr. Bourgoin did not have that kind of money, and his bank refused his request for a $20,000 line of credit. So he turned to Seahold Investments Inc., one of a handful of companies in Canada now in the controversial business of offering high-interest loans - up to 32.9 per cent a year - to litigants in need of cash.
Mr. Bourgoin, now 28, acknowledges that he felt the interest rate -comparable to some retail credit cards - was too high, but says it was his only option: "I thought to myself … 'Even if it bothers me, do I have a choice? Not really.' " In the end, the costs of his case exceeded $50,000. But the investment paid off in the form of a $500,000 settlement.
This sort of lawsuit-related lending has been growing in Canada over the past five years, especially in personal injury cases such as Mr. Bourgoin's. But so-called third-party litigation financing is now also surfacing in commercial cases and class actions.
Proponents say it is the only way that people priced out of the justice system can get a day in court, and that it levels the playing field against well-financed defendants. The sky-high interest rates are required, they say, because investing in lawsuits is extremely risky.
Critics in the United States, where this type of financing is much more widespread, warn that it spawns frivolous lawsuits, discourages plaintiffs with big loans from settling cases and charges the disadvantaged predatory rates of interest. Loans and high interest payments can also leave some plaintiffs with bills that exceed or eat up much of whatever settlement they receive.
Hubert Seamans, a New Brunswick minister in Frank McKenna's Liberal government in the 1990s, founded Moncton-based Seahold Investments in 2000. The business now deals with thousands of clients and hundreds of lawyers across the country and has about $11-million out in loans to personal injury claimants, Mr. Seamans says. Those loans, he adds, put the poor on a more equal footing in court, and have pushed out of business the local loan sharks that some used to turn to.
"To us it's really an access-to-justice issue," Mr. Seamans says. "Richer people get bigger settlements. Poorer people get smaller settlements. With our help, it allows everybody a shot at a fair settlement."
Personal injury lawyers generally work on contingency, but some plaintiffs need help making ends meet to hold out for a settlement. And some cases require up to $100,000 in experts and reports, expenses not every lawyer can afford to pay up front while waiting years for a case to settle.
Toronto lawyer Jeffrey Strype, who handles personal injury and medical malpractice cases, says about 50 of the 700 cases he has on the go involve third-party litigation financing, including from Seahold and its bigger Toronto-based competitor, BridgePoint Financial Services.
Without such financing, he says, many people in tragic circumstances would be forced to settle for a fraction of the compensation they should receive, making such loans more than worthwhile, even with the high interest rates charged by lenders.
"What happened in the past was the financial squeeze was a tactic, employed by the insurer to settle the case more optimally for the insurer than for the client," Mr. Strype said.
Canada's tiny lawsuit lending business is a long way from the size of its U.S. counterpart, where big banks are involved and as much as $1-billion (U.S.) is invested in lawsuits at any given time, according to a report in The New York Times. The U.S. Chamber of Commerce, concerned that this sort of financing provokes frivolous lawsuits against businesses, has called for a ban.
But some in the small club of lenders in Canada are expanding their horizons into commercial litigation and class actions. Waterloo, Ont.-based Lexfund Management Inc., which used to finance personal injury cases, said it is now moving exclusively into commercial cases worth more than $1.5-million (Canadian).
And the business is gaining acceptance in court. Mr. Bourgoin's case caused a stir because it was believed to be the first time a court allowed interest payments on a third-party litigation loan to be counted as a legal expense that the defendant had to pay, instead of having to be deducted from the plaintiff's settlement or award.
Mr. Bourgoin's lawyer, Maurice Bourque, of Edmunston, N.B., is fighting to have the same principle enshrined in law in another vehicular accident case before the New Brunswick Court of Queen's Bench in March.
Much is riding on the outcome, Mr. Bourque said. "If I win this, it will really be levelling the playing field. … The small man will be on the same footing as GM or Toyota or Exxon or whatever. Or any insurance company."