2018 ONSC 4314

DIVISIONAL COURT FILE NO.: 399/17 DATE: 20180717

ONTARIO SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

C. Horkins, Conway & Sheard JJ.

BETWEEN:

CITY OF TORONTO

Applicant

– and –

CANADIAN UNION OF PUBLIC EMPLOYEES, LOCAL 79 and Arbitrator MARILYN NAIRN

Respondents

Robert Fredericks, for the Applicant

Douglas J. Wray, for the Respondents

HEARD at Toronto: June 18, 2018

C. hORKINS J.

introduction

[1] The City of Toronto (the “City”), seeks judicial review of Arbitrator Marilyn Nairn’s decision dated March 27, 2017.

[2] This judicial review application involves a fraud that a former City employee, Elsa-Omaga Dagatan (“Ms. Dagatan”) committed. The City was the victim of this fraud.

[3] Ms. Dagatan knowingly participated in the fraudulent scheme with Kamal Ramsundar, who was not employed by the City. Ms. Dagatan fraudulently submitted health claims to Manulife and was paid $4,954 for medical supplies that she never purchased or received. She shared an unknown portion of the $4,954 with Mr. Ramsundar.

[4] The City filed a grievance seeking full recovery of the money from Ms. Dagatan. The Arbitrator found that it was “appropriate” to limit the City’s recovery by 50%, even though the City was the victim of the fraud that Ms. Dagatan committed.

[5] The City states that the Arbitrator’s decision is wrong in law and unreasonable and that the Arbitrator did not provide the City with procedural fairness.

the background and decision

[6] The City provided health benefits to employees under the terms of a Collective Agreement. It was solely responsible for the cost of the benefits. Manulife was responsible for administering the benefits. In this role, Manulife discovered a fraudulent health benefits scheme that Ms. Dagatan participated in and benefitted from, to the detriment of the City.

[7] In a letter dated December 11, 2014, the City advised Ms. Dagatan that an investigation confirmed she had committed a health claims fraud. The letter provided particulars of the investigation, told Ms. Dagatan that her “egregious behaviour” violated the City’s Fraud Prevention Policy and was a breach of trust and as a result her employment was terminated. The City requested that Ms. Dagatan immediately repay the $4,954 that was paid to her in good faith. Ms. Dagatan has not repaid any portion of the monies that she fraudulently received.

[8] The Union filed a grievance disputing Ms. Dagatan’s termination. The termination grievance was referred to arbitration. Ms. Dagatan failed to attend the arbitration after the first day. As a result, Arbitrator Nairn dismissed the termination grievance.

[9] The City filed two grievances under Article 9.10 the Collective Agreement that provides as follows:

Recovery of Accidental Overpayment

9.10 In the event of an overpayment, the City shall advise the employee in writing of such overpayment which will outline the reason(s), the amount of the overpayment and the date(s) on which the overpayment occurred. Local 79 shall be informed in writing at the same time as the employee.

The City shall meet with the employee who shall be represented by a Unit Officer or designate so as to negotiate an appropriate schedule of recovery. The recovery schedule shall not exceed the maximum permitted by the Wages Act, R.S.O. 1990, as amended, unless the parties agree otherwise. It is understood that such overpayment may be the subject of a grievance at Step 3.

[10] The City’s December 11, 2014 letter was the written notification that Article 9.10 requires.

[11] The City’s first grievance requested recovery of $4,954 from Ms. Dagatan (the “benefit grievance”). The second grievance requested recovery of $213.31 in salary that was paid in error to Ms. Dagatan after her termination (the “salary grievance”).

[12] After the termination grievance was dismissed, the Union and the City agreed that Arbitrator Nairn would hear the benefit and salary grievances. The Union did not dispute the Arbitrator’s jurisdiction to hear these grievances under Article 9.10 of the Collective Agreement.

[13] Ms. Dagatan did not attend the hearing of the City’s grievances and the Union had no reliable knowledge of her whereabouts.

[14] The Union did not dispute the salary grievance. The Arbitrator found that the City mistakenly overpaid $213.31 in salary to Ms. Dagatan after she was terminated and the City was entitled to full recovery plus interest from her.

[15] Turning to the benefit grievance, the Arbitrator found on the evidence that Ms. Dagatan “lied to and deceived her employer in order to obtain a financial benefit to which she was not otherwise entitled.” She “knowingly participated in and benefitted from a fraudulent health benefit claims scheme.” The scheme was “deliberate and intended to deceive” the City.

[16] Ms. Dagatan participated in the scheme with Mr. Ramsundar and received $4,954 for medical supplies that she never purchased or received. The police charged Mr. Ramsundar with various fraud-related offences, but he died before the charges were heard in court.

[17] Other City employees who had participated in this fraudulent scheme had shared the fraudulently obtained funds with Mr. Ramsundar. The split varied with the employee keeping 50%, 60% or 70% of the monies. The Arbitrator found that Ms. Dagatan gave Mr. Ramsundar a portion of the $4,954, but there was no evidence of the amount of their split.

[18] The Union argued that Ms. Dagatan should only be required to pay the City the portion of the money that she kept.

[19] Without notice to the parties, the Arbitrator found that her jurisdiction to hear the benefit grievance under Article 9.10 was not “obvious” or “exclusive.” She found that Article 9.10 was limited to “accidental” payments that the City made and the $4,954 benefit payment not “accidental or a mistake.” The Arbitrator explained that the basis for her jurisdiction arose from her authority to determine the disciplinary consequences of Ms. Dagatan’s fraud.

[20] The Arbitrator found that the City was “the victim of a fraud perpetrated by an employee in conjunction with a third party.” In these circumstances, the Arbitrator found that the City was seeking “restitution” of $4,954 from Ms. Dagatan. The Arbitrator described this as “damages” typically ordered in the context of “reinstatement to employment forming part of an appropriate disciplinary response to the misconduct.” As a result, the Arbitrator found that the City’s benefit grievance “appropriately fell within the disciplinary ambit of just cause” and not Article 9.10 of the Collective Agreement.

[21] The Arbitrator relied on M. (S.) v. Kohl, [2001] O.J. No. 3587 (S.C.) to conclude first, that her jurisdiction was not “exclusive” and second, that there was concurrent jurisdiction with the court to hear the City’s claim for $4,954. The City, in her view, “retained the right to pursue this claim against Ms. Dagatan in the courts.”

[22] Based on her view that there was concurrent jurisdiction with the court, the Arbitrator embarked on an analysis of tort principles to justify her decision that the City was not entitled to recover all of the money that Ms. Dagatan fraudulently obtained.

[23] The Arbitrator described Ms. Dagatan and Mr. Ramsundar as joint tortfeasors who were jointly and severally liable for the City’s loss. The Arbitrator stated that if the City had pursued recovery from Ms. Dagatan in a civil action, Ms. Dagatan could have claimed contribution from Mr. Ramsundar for his portion of the funds. Since the City had chosen to pursue a grievance of its claim, the Arbitrator found that Ms. Dagatan lost the right to seek a contribution from Mr. Ramsundar because the Arbitrator had no jurisdiction over Mr. Ramsundar.

[24] The Arbitrator found it “appropriate” to reduce the “restitution” order by 50% to $2,475. She explained that the 50% reduction was justified for the following reasons:

(i) Ms. Dagatan had lost her employment at the City.

(ii) The fraud that she committed could “affect her prospects for future employment and her ability to make restitution.”

(iii) The 50% reduction “effectively and necessarily protects any substantive right Ms. Dagatan may have had to seek contribution from Ramsundar (or his estate), yet accords to the employer's decision to pursue the matter in this forum.”

(iv) Although there was no evidence of whether, or to what extent, Ms. Dagatan had shared the money with Mr. Ramsundar, the Arbitrator found that s. 4 of the Negligence Act R.S.O. 1990, c. N.1 allowed her to assign fault equally between them.

(v) The Arbitrator stated that 50% was a sufficient remedy for the City because Ms. Dagatan had been terminated. The 50% reduction was an “appropriate arbitral response to the misconduct” and the City’s resulting loss.

position of the parties

[25] The City states that the Arbitrator did not provide procedural fairness and the decision was wrong and unreasonable.

[26] Dealing with procedural fairness, the City states that it had no opportunity to respond to the Arbitrator’s interpretation and rejection of Article 9.10 of the Collective Agreement. If the City had known that the Arbitrator was going to reject the application of Article 9.10, it would have led evidence about the City’s past practice regarding the interpretation and use of Article 9.10, to recover payment of fraudulent claims.

[27] Further, the City states that when the Arbitrator rejected the application of Article 9.10, her decision to reduce the City’s recovery by 50% was wrong in law and unreasonable for the following reasons:

(i) The Arbitrator relied on her jurisdiction as the Arbitrator in the termination grievance, but she no longer had jurisdiction under this grievance because it had concluded.

(ii) The Arbitrator erred in finding that the Superior Court had concurrent jurisdiction to hear the City’s claim. The essential character of the dispute arose from the Collective Agreement. As a result, there was no overlapping jurisdiction with the court. The Arbitrator’s decision is contrary to the direction of the court in Weber v. Ontario Hydro, 1995 108 (SCC), [1995] 2 S.C.R. 929.

(iii) The Arbitrator’s finding of concurrent jurisdiction led her to import and rely on principles of negligence law, to protect Ms. Dagatan’s right to seek a contribution from Mr. Ramsundar. The Negligence Act does not apply to a labour arbitration. Even if it did, the Arbitrator was wrong in law to reduce the City’s recovery because the principle of joint and several liability allows the plaintiff (i.e. the City) to recover 100% of the loss from either tortfeasor.

[28] The Union agrees that if the Arbitrator had notified the parties of her intention to reject the application of Article 9.10, the City would have introduced evidence of its past reliance on this Article.

[29] At the arbitration, the Union argued that the City’s recovery should be reduced. The Union states that this argument did not depend on whether the Arbitrator relied on Article 9.10. It is the Union’s position that the Arbitrator had the inherent discretion to reduce the award. As a result, the Arbitrator’s failure to give the parties notice did not result in a denial of procedural fairness. Further, the Union states that the Arbitrator reasonably decided that she had jurisdiction and therefore her finding of concurrent jurisdiction is not material to the result that the Union says was reasonable.

standard of review

[30] On the issue of denial of procedural fairness, there is no standard of review. Rather, the court must decide if the requisite level of procedural fairness has been met taking into account the factors in Baker v. Canada (Minister of Citizenship and Immigration) 1999 699 (SCC), [1999] 2 S.C.R. 817: the nature of the decision being made and the process followed in making it; the nature of the statutory scheme and the terms of the statute pursuant to which the body operates; the importance of the decision to the individual affected; the legitimate expectations of the person challenging the decision; and the choice of procedure selected by the agency.

[31] As stated in London (City) v. Ayerswood Development Corp 2002 3225 (ON CA), 167 O.A.C. 120 (C.A.) at para. 10, the court is “required to evaluate whether the rules of procedural fairness or the duty of fairness have been adhered to. The court does this by assessing the specific circumstances giving rise to the allegation and by determining what procedures and safeguards were required in those circumstances in order to comply with the duty to act fairly”.

[32] Aside from the procedural fairness issue, the other grounds of review are assessed on a standard of reasonableness. It is well established that presumptively, the standard of review of an arbitrator’s decision is reasonableness (see, for example, Toronto Community Housing Corporation v. Canadian Union of Public Employees, Local 79, 2018 ONSC 697 at para. 9; City of Guelph v. Guelph Professional Fire Fighters Association, 2018 ONSC 135 at para. 41; Canada Post Corporation v. Canadian Union of Postal Workers, 2017 ONSC 6400, para. 18; Port Perry Community Nursing Home v. O.N.A. 2010 ONSC 1296).

[33] The City argues that the Arbitrator’s determination of the source of her jurisdiction should be reviewed on a correctness standard. I disagree. The Arbitrator determined the source of her jurisdiction by interpreting the Collective Agreement, a document that falls within an arbitrator’s core expertise. She decided that Article 9.10 did not apply and found that she had jurisdiction under the termination grievance.

[34] In Canada (Canadian Human Rights Commission) v. Canada (Attorney General) 2018 SCC 31 at para. 55, the court summarized the reasonableness review as follows:

In reasonableness review, the reviewing court is concerned mostly with "the existence of justification, transparency and intelligibility within the decision-making process" and with determining "whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law" (Dunsmuir, at para. 47; Newfoundland and Labrador Nurses' Union v. Newfoundland and Labrador (Treasury Board), 2011 SCC 62, [2011] 3 S.C.R. 708, at para. 14). When applied to a statutory interpretation exercise, reasonableness review recognizes that the delegated decision maker is better situated to understand the policy concerns and context needed to resolve any ambiguities in the statute (McLean, at para. 33). Reviewing courts must also refrain from reweighing and reassessing the evidence considered by the decision maker (Khosa, at para. 64). At its core, reasonableness review recognizes the legitimacy of multiple possible outcomes, even where they are not the court's preferred solution.

[35] As I will now explain, procedural fairness was denied and the decision is unreasonable.

Procedural Fairness Was Denied

[36] The Arbitrator’s decision to question and reject the application of Article 9.10, without notice to the parties, was a denial of procedural fairness.

[37] The City chose to pursue its grievance under Article 9.10. It had no reason to expect that the Arbitrator would challenge the application of Article 9.10, particularly when the Union did not raise the issue.

[38] If the Arbitrator had given the parties notice, the City would have called evidence of the parties’ past practice of relying on Article 9.10 to seek recovery of monies paid to an employee under the Collective Agreement due to fraud. The City would also have made submissions on why the Article applied and required full recovery, without a reduction.

[39] The Arbitrator concluded that Article 9.10 did not apply and relied solely on the heading in the Article: “Recovery of Accidental Overpayment.” She found that the payment was not “accidental or a mistake.”

[40] In the Arbitrator's view, since the fraudulent benefits payment was made in good faith, it was therefore not "accidental." She found that Article 9.10 could be used only to recover funds that had been mistakenly paid to an employee by the City. This was the Arbitrator's entire analysis of Article 9.10. She reached this conclusion without the benefit of evidence concerning past use of Article 9.10 and submissions from the parties.

[41] In the context of a proven and serious fraud, the Arbitrator’s decision to reject Article 9.10, without notice, was not as the Union suggests, immaterial or irrelevant. The Arbitrator's ruling on the interpretation and non-applicability of Article 9.10 was an important part of her decision. As explained below, it led her down a path of analysis that is wrong in law and therefore unreasonable.

[42] For these reasons, I find that procedural fairness was not provided to the City. This ground alone is a sufficient basis to set aside the decision of the Arbitrator and remit the matter back for a new arbitration. Since this is a judicial review where additional compelling reasons exist to support this result, I now turn to consider them.

The Decision Is Unreasonable

[43] The Arbitrator’s decision to reject the application of Article 9.10 led to a decision that lacks “justification” and “intelligibility” and does not fall “within a range of possible, acceptable outcomes which are defensible in respect of the facts and law".

[44] Having rejected jurisdiction under Article 9.10, the Arbitrator grounded her jurisdiction under the termination grievance and characterized the City’s request for recovery as restitution.

[45] An arbitrator’s jurisdiction is limited by the scope of the grievance that is submitted to arbitration. The Union’s termination grievance was a separate grievance that the Arbitrator had already heard and finally determined. She no longer had the jurisdiction to make orders under the termination grievance. Her remedial authority over Ms. Dagatan with respect to the termination grievance was functus officio. As such, it was unreasonable for her to derive her remedial authority from this grievance.

[46] Having rejected jurisdiction under Article 9.10, the Arbitrator made a further error. At paras. 56-58, she concluded that her jurisdiction was not “exclusive” and that the City could have sued Ms. Dagatan in court to recover the monies. This is a finding of concurrent jurisdiction.

[47] The finding of concurrent jurisdiction led the Arbitrator to consider and rely on the right of a tortfeasor in a civil action to seek contribution and indemnity from another tortfeaser. The Arbitrator stated that the City’s decision to proceed with arbitration precluded Ms. Dagatan from seeking contribution from Mr. Ramsundar in a civil action.

[48] The Arbitrator explained that her decision to limit the City’s recovery by 50% “effectively and necessarily protects any substantive right Ms. Dagatan may have had to seek contribution from Ramsundar (or his estate), yet accords to the employer's decision to pursue the matter in this forum.”

[49] There are three important errors in this part of her analysis that make the decision unreasonable. The first two errors overlap. First, there is no analysis to support the finding of concurrent jurisdiction and the facts do not support concurrent jurisdiction based on Weber. Second, Kohl does not support concurrent jurisdiction. Third, the Arbitrator’s interpretation and application of the Negligence Act was wrong in law.

[50] The Arbitrator found at para. 58 that the “decision in Kohl supports a conclusion that the City retained a right to pursue this claim against Ms. Dagatan.”

[51] The facts in Kohl are distinguishable. The plaintiff was student and the defendant Kohl was her teacher. He initiated an improper sexual relationship with the plaintiff. As a result, the plaintiff commenced a civil action against Kohl and the School Board seeking damages.

[52] The plaintiff alleged that Kohl was known to seek out female students and prey upon those who were vulnerable. The plaintiff also alleged that the Board failed to supervise Kohl and remove him from teaching duties upon learning about his behaviour. The main action was clearly a private civil dispute.

[53] The Board issued a third party claim against the Teachers’ Federation. The basis of this pleading related to an earlier Board decision to suspend Kohl, because of his sexual misconduct with students. The Federation grieved the suspension. The Board agreed to reinstate Kohl on the condition that he seek counselling. In the third party claim, the Board alleged that the Federation failed to ensure that Kohl fulfilled his obligation to undergo counselling and if he had done so, he would not have harmed the plaintiff.

[54] The Federation brought a motion to strike the third party claim. It argued that the issue in the third party claim arose from the Collective Agreement and, as a result, the court had no jurisdiction to hear the matter.

[55] Following the direction in Weber, the court considered the pertinent questions at para. 12: “What then is the ‘essential character’ of the dispute and does it arise from the collective agreement? What is the ambit or scope of the collective agreement and does the dispute arise from the ‘interpretation, application, administration or violation of the collective agreement’?”

[56] The court noted that the agreement the Board reached with Kohl in the grievance, viewed in isolation, “might well be only an arbitrable issue.” However this was “too narrow of a view of the ‘essential character’ of the dispute.” The plaintiff’s claim pervaded all aspects of the dispute, including the third party claim. She was “the central figure” in the case. Findings of fact and a definition of the Federation’s duty would be part of the “subject matter in the main action.” Viewed in this context, the court did not accept that the essential character of the dispute in the third party action arose from the Collective Agreement or its administration. The motion to strike the third party claim was dismissed.

[57] The plaintiff in Kohl was not a party to a Collective Agreement. In contrast, here the City commenced its claim for recovery by filing a grievance under the Collective Agreement. The City was bound by the Collective Agreement. The dispute concerned the health benefits that the City was required to provide to the employees under the Collective Agreement. The employee’s termination had already been the subject of a grievance and the City’s right to seek recovery was under the Collective Agreement.

[58] The Arbitrator did not consider the essential character of the City’s dispute, which was clearly a labour dispute. Her reference to Weber was limited to the court’s reliance on Weber in Kohl, a decision based on very different facts. The Arbitrator’s reliance on Kohl, her failure to consider the “essential character” of the dispute and concluding there was concurrent jurisdiction, was unreasonable.

[59] Part of the Arbitrator’s analysis included her consideration of the Negligence Act. It is correct that under s. 2 of this Act a tortfeasor can seek “contribution and indemnity from any other tortfeasor who is, or would if sued have been, liable in respect of the damage to any person suffering damage as a result of a tort.” The Arbitrator used this concept of contribution and indemnity to limit the City’s recovery to 50%. This is wrong in law for the following reasons.

[60] The liability of tortfeasors under the Negligence Act is joint and several. This means that each tortfeasor is liable for the whole of the loss that the plaintiff suffers and that the plaintiff may, at his option, recover all of the loss from one of the tortfeasors. The right to seek contribution and indemnity, only arises when one tortfeasor pays some portion of another tortfeasor’s assigned fault. If, for example, the payor tortfeasor is 60% liable and pays 100% of the damages, he can seek recovery of the 40% he paid for the other tortfeasor. The same analysis applies regardless of the percentage split in liability (see, for example, Lawson v. Viersen 2012 ONCA 25 at para. 31; Ingles v Tutkaluk Construction Ltd., 2000 SCC 12 at paras. 58-60; David Cheifetz, Appointment of Fault in Tort (Aurora: Canada Law book, 1981), at p. 20).

[61] When the Arbitrator reduced the City’s recovery by 50%, she explained that this was protecting Ms. Dagatan’s “substantive right” to seek “contribution” from Mr. Ramsundar. Such a right would only arise if Ms. Dagatan paid the City more than 50% of the City’s claim. Ms. Dagatan has never returned any part of the money that she fraudulently received from the City. Furthermore, the right to seek contribution does not alter the primary right of the City to demand full recovery from Ms. Dagatan.

[62] Finally, Ms. Dagatan did not participate in the arbitration and her whereabouts are unknown. The Arbitrator assumed that Ms. Dagatan’s employment prospects and ability to make “restitution” were impacted by her termination. Aside from the fact of Ms. Dagatan’s termination, there was no evidence to support this finding. The Arbitrator relied on these unproven assumptions to justify reducing the City’s recovery by 50%.

[63] Ms. Dagatan knowingly committed a fraud. As the Arbitrator stated, she “lied and deceived” the City and never attended the arbitration to explain her actions or even apologize. The Arbitrator’s decision penalizes the City and provides the employee who committed the fraud with relief. In this context, the decision is completely unreasonable.

Conclusion

[64] The decision of the Arbitrator is quashed and set aside. The matter is remitted back for a new hearing to decide the benefit grievance, in accordance with the provisions of the Collective Agreement.

[65] The parties have agreed on costs. The Union shall pay the City costs of this application fixed at $5,000 all inclusive.

__________________________ C. Horkins J.

I agree ___________________________

Conway J.

I agree __________________________

Sheard J.

Released: July 17, 2018

2018 ONSC 4314

DIVISIONAL COURT FILE NO.: 399/17 DATE: 20180717

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

C. Horkins, Conway & Sheard JJ.

BETWEEN:

CITY OF TORONTO

Applicant

– and –

CANADIAN UNION OF PUBLIC EMPLOYEES, LOCAL 79 and Arbitrator MARILYN NAIRN

Respondents

REASONS FOR JUDGMENT

C. Horkins J.

Released: July 17, 2018