Executive Summary: Key Legal and Evidentiary Issues

• Validity of ELFI’s entitlement to settlement funds based on loan agreements secured by litigation proceeds.

• Whether Ms. Downes’ personal and financial circumstances created an inequality of bargaining power.

• Evaluation of the improvidence of the loan terms, including high compound interest and broad security clauses.

• Characterization of the loans as demand loans rather than standard “non-recourse” settlement loans.

• Application of the Uber Technologies Inc v Heller unconscionability test to the loan arrangements.

• Recalculation of the repayable amount under Alberta’s Unconscionable Transactions Act based on fairness.

Background of the case

In McCourt Law Offices v Downes, 2025 ABKB 268, the Alberta Court of King’s Bench resolved a dispute over the distribution of funds paid into court after the settlement of a personal injury lawsuit. The Applicant, McCourt Law Offices, had represented Tammy Lynn Downes in the litigation. After settlement, $58,838.29 in net proceeds was deposited into court due to conflicting claims by Downes and Easy Legal Finance Inc. (ELFI), which had acquired prior loans issued to Downes.

Between June 2016 and August 2017, Downes received four loans totaling $4,500 from Settlement Lenders Inc. (now ELFI), under agreements that required repayment of $5,625 plus interest. The loans were secured by an irrevocable assignment of the personal injury lawsuit proceeds, carried compound interest at 19.95% per annum for the first year and 29.95% thereafter, and contained provisions allowing the lender to demand repayment annually. They also included security over all real and personal property then owned or later acquired.

At the time of the lawsuit settlement in early 2024, ELFI claimed $47,006.76 as the amount owing under the loan agreements. The sole issue for the Court was whether the terms of the loans were unconscionable.

Loan terms and policy clauses at issue

The MV Action Loans had atypical features that distinguished them from standard settlement loans. Unlike conventional non-recourse settlement loans—where repayment is contingent on a successful legal outcome—these loans allowed for repayment on demand regardless of litigation status. They also granted the lender a security interest in all current and future assets of the borrower. The documentation included a Promissory Note, Statement of Disclosure, Irrevocable Assignment of Proceeds, and Consent to Release of Information. The Statement of Disclosure stated that repayment would be waived only if a court denied compensation.

ELFI argued that the interest rates were consistent with industry standards and not unusually harsh. However, no evidence was led on comparative market rates for settlement loans versus general or high-risk loans.

Inequality of bargaining power

The Court applied the Uber Technologies Inc v Heller framework, which requires both inequality of bargaining power and an improvident bargain for a finding of unconscionability. ELFI argued there was no inequality because Downes had a university degree, was familiar with lawsuit-secured loans, and had previously obtained similar loans in a medical malpractice case. The Court rejected this view, citing that legal and equitable principles recognize a broad array of transactional vulnerabilities.

Downes testified that she was in desperate financial need at the time, using the loans to pay for rent, medical care, and basic family needs. She had been disabled for nine years, was in extreme pain, and did not have independent legal advice for these loans. The Court found that Downes’ circumstances placed her in a “necessity” scenario under Uber, where she would have accepted almost any terms to avoid dire consequences. The judge concluded there was a clear inequality of bargaining power.

Improvident bargain

The Court then examined whether the loan terms were improvident. It found that these loans went beyond standard settlement loans, particularly due to the repayment-on-demand feature and the wide-reaching security interests. The demand and security provisions, though arguably ineffective in practice due to Downes’ lack of assets, were legally enforceable and could not be disregarded.

Although ELFI argued that the interest rates were consistent with the MedMal Action Loans and with industry norms, the Court held that there was no identified market price for loans with this unique set of terms. It concluded that the effective cost of the loan—$47,006.76 for $4,500 advanced—constituted undue enrichment and did not meet reasonable expectations. This made the bargain improvident.

Legal conclusion and remedy

Applying both equitable principles and Alberta’s Unconscionable Transactions Act, the Court found the MV Action Loans to be unconscionable. Under section 2 of the Act, it reopened the transaction and adjusted the repayment amount. Based on Downes’ counsel’s suggested recalculation, the Court approved a total repayment of $17,359.68, which included simple (non-compounded) interest at the agreed rates. The remainder of the court-held funds was ordered to be paid to Downes.

The Court also awarded Downes costs under Column 1 of Schedule “C” to the Alberta Rules of Court. The judgment highlights how the courts will intervene to prevent exploitation in loan arrangements involving financially vulnerable individuals, even in cases involving sophisticated-looking agreements.