Ontario Insurance Commission

Commission des assurances de l’Ontario

Neutral Citation: 1996 ONICDRG 157

Appeal P-004002

OFFICE OF THE DIRECTOR OF ARBITRATIONS

ANAND BOODHAI

Appellant

and

ALLSTATE INSURANCE COMPANY OF CANADA

Respondent

Before:

Susan Naylor, Director's Delegate

Counsel:

Pradeep B. Pachai (for Mr. Boodhai)

Ian Kirby (for Allstate)

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. The appeal is dismissed and the arbitrator's order dated June 14, 1995 is confirmed.

2. Mr. Boodhai is entitled to his reasonable appeal expenses. Allstate Insurance Company of Canada may deduct the amount of appeal expenses from the repayment ordered, to the extent of the balance that remains owing.

September 18, 1996

Susan Naylor

Director’s Delegate

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This appeal involves a single but important question: Does an arbitrator have the jurisdiction to order that an insurer may set off an expenses award made in favour of a claimant against a repayment to which it is entitled, when both arise out of the same proceeding?

The central issue is whether the authority to order a set-off in these circumstances requires the application of the rules of equity (and is therefore precluded to an arbitrator) or is implicit in the Insurance Act, R.S.O. 1990, c. I-8, (the "Insurance Act"), and its attendant regulations, (and is therefore open to the arbitrator).

II. THE ARBITRATION ORDER

Mr. Boodhai was injured in an accident on March 26, 1991. He and Allstate Insurance Company of Canada (Allstate) disagreed about the duration and amount of his weekly income benefits. The dispute went to arbitration. The arbitrator found that Mr. Boodhai had received a higher rate of benefits than he was entitled to, and that he must repay the difference to Allstate. Although Mr. Boodhai's claim was unsuccessful, Allstate was ordered to pay his arbitration expenses, as is the usual Commission practice, because his application was not found to be improper. The arbitrator's order dated November 21, 1994, read as follows:

1. Mr. Boodhai is not entitled to any additional weekly income benefits.

2. Mr. Boodhai is not entitled to weekly income benefits in excess of $185.60 per week.

3. Mr. Boodhai was overpaid by $14,086.40. The overpayment resulted from error or fraud and, therefore, must be repaid to Allstate.

4. Allstate is not required to pay a special award.

5. Mr. Boodhai is entitled to his expenses related to this arbitration.

After this decision was issued, the parties asked the arbitrator to deal with several consequential questions. These included whether Allstate could credit the expenses it was required to pay against the repayment it was owed. Allstate argued that it should be able to deduct the expenses from the overpayment, thereby reducing the latter. They sought an order to this effect. Allstate submitted that it should not have to pay Mr. Boodhai even more money, when he had been found to owe them more than $14,000.

Mr. Boodhai argued that the arbitrator had no authority to allow a set-off or credit in the circumstances. Each of the arbitrator's conclusions on the issues before him were discrete and had to be enforced separately. He sought an order requiring Allstate to pay his expenses in full.

The arbitrator concluded that he had the power to order a set-off. In his view, the authority was implicit in subsection 279(4) of the Insurance Act, which requires arbitrators to deal with the often multiple issues before them by order:

In my opinion, the legislation authorises the arbitrator to make an order that responds to the issues raised by the parties. The central concern in most cases is whether the insurer is obligated to pay more money to the applicant. I believe that it follows that the arbitrator can consider the success of the parties on the various issues and make an order that determines what is to be paid.

...it is clear that the award of expenses is to the insured person, not to his or her representative. I am not prepared to order Allstate to pay additional amounts to Mr. Boodhai when I have determined that he is required to repay such a substantial sum. I conclude therefore that rather than making any further payments to Mr. Boodhai, Allstate may reduce his overpayment by the amount of his expenses, calculated according to Ontario Regulation 664.

(Decision, page 5)

The arbitrator limited his order to the deduction of expenses. He refused to decide whether Allstate could set off any future benefits to which Mr. Boodhai might become entitled against the balance of the repayment ordered. In his view, the issue was speculative. (This ruling is not challenged on appeal). He issued a supplementary order, which read:

Mr. Boodhai is required to repay Allstate $14,086.40, minus his expenses related to the arbitration, plus interest on this amount calculated from November 21, 1994 at the bank rate of 5.6 per cent.

(Decision, page 6)

III. SUBMISSIONS AND CONCLUSION

Mr. Boodhai's first ground of appeal is that Allstate should not have been allowed to claim a set-off, because it had not done so in its response form or at the pre-hearing. He argues that set-off must be pleaded as a defence to a claim. However, the arbitration process is less formal than court. The application and response forms are not the same as pleadings, and in most cases the information contained in them is fairly concise. Only an insured may apply for arbitration; there is no real equivalent of a "counterclaim". The main objective is that the parties have reasonable notice what the arbitration will deal with, and a fair opportunity to prepare their cases accordingly.

Mr. Boodhai knew that Allstate was seeking a repayment and opposed an award of expenses. The question of set-off only arose as an ancillary aspect of the arbitrator's disposition of these issues. I doubt that Allstate's position came as a complete surprise, but even if Mr. Boodhai had not anticipated it, he was given adequate notice of, and an opportunity to make submissions on, the question. He was not prejudiced by the process followed.

Mr. Boodhai's main argument is that the arbitrator has no jurisdiction to order a set-off, because it requires the exercise of equitable jurisdiction, which is available only to superior courts.

According to the author of The Law of Set-off in Canada¹, the definition of set-off in the literature follows two streams of thought: the accounting definition and the defence definition:

Accounting definitions of set-off tend to note the effect of set-off in balancing the amount of the claim raised between the parties resulting in a reduced or extinguished claim....

Other definitions look less at the effect of set-off – the amounts payable between the claimants, and more to whether a claim for set-off will offer a defence against the plaintiff's claim.

The author concludes that there is a common rationale for using set-off regardless of which definition is adopted: to reduce continuing litigation and avoid multiplicity of proceedings.²

In Re Director of the Family Support Plan and Freyseng, (1994), 1994 CanLII 7175 (ON CTPD), 18 O.R. 361 (Prov. Div.), aff'd (1994), 21 O.R. (3d) (Gen. Div.), Provincial Division Judge Jones sets out the three circumstances in which a right of set-off may arise:

(a) by agreement of the parties;

(b) by operation of law (statute);

(c) by equity.

The common law rules governing set-off are codified in section 111 of the Courts of Justice Act, R.S.O. 1990, c. 43, as amended. They provide a right to set off mutual debts, but exclude uncertain claims, such as unliquidated damages. The courts of equity mitigated the rigidity of the common law rules by allowing set-off in a broader range of circumstances.³ Since the fusion of the courts of law and equity last century, the courts have administered the rules of law and equity concurrently. However, set-off is not available to arbitrators under either section 111 or the rules of equity. Part VII of the Courts of Justice Act applies only to proceedings in Ontario courts.⁴ Only the superior courts have inherent jurisdiction and may grant equitable relief.⁵ In Freyseng, it was held that the right to deal with claims for equitable set-off was reserved to the Ontario Court (General Division) and the Court of Appeal and did not extend to provincial division judges. It is clear that a Commission arbitrator, as a statutory body, has no jurisdiction in equity to grant a set-off.

Arbitrators exercising powers under the dispute resolution provisions of the Insurance Act have only the powers that are conferred on them either expressly by the legislation or by necessary implication. The parties to an arbitration cannot agree to confer jurisdiction on an arbitrator that he or she would not otherwise have.

Mr. Boodhai's accident happened on March 26, 1991. This case therefore falls under the Insurance Act and the Statutory Accident Benefits Schedule - Accidents before January 1, 1994, R.R.O. 1990, Reg 672, (the "Schedule"). The legislation and this regulation do not say anything about set-off or how repayments may be recovered.⁶ Therefore, any authority to order a set-off must arise by necessary implication from the statutory provisions. The doctrine of jurisdiction by necessary implication has been described in Bell Canada v. Canada (Canadian Radio Television and Telecommunications Comm.) 1989 CanLII 67 (SCC), [1989], 1 S.C.R. 1722, 38 Admin. L.R. 1 at 33, in the following terms:

The powers of any administrative tribunal must of course be stated in its enabling statute, but they may also exist by necessary implication from the wording of the act, its structure and purpose.

In that decision, the court held the CRTC's express power to make interim orders necessarily included a power to revisit the period during which the interim orders were in force. The fact that the power in issue was provided explicitly in other statutes did not change the court's conclusion.

The provisions, context and purpose of the particular legislative scheme must be examined in order to determine whether a right to order set-off arises by necessary implication. The Insurance Act establishes a dispute resolution process for resolving "disputes in respect of any insured person's entitlement to statutory accident benefits or in respect of the amount of statutory accident benefits to which an insured person is entitled".⁷ The scope of the arbitrator's authority is to deal with disputes of this nature, that are properly before him or her.⁸ Disputes must first be mediated. If mediation is unsuccessful, the insured has a choice of going to court or arbitration. If arbitration is chosen, the arbitrator is required to determine the issues in dispute and other issues agreed to by the parties. Under subsection 279(4) of the Insurance Act, arbitrators must determine issues before them "by order and may make an order subject to such conditions as are set out in the order". The arbitrator has exclusive jurisdiction to exercise powers conferred on him or her.⁹ However, arbitration orders are enforced through the courts.¹⁰

The Schedule sets out the accident benefits available, and the terms and conditions of entitlement. Section 27 of the Schedule expressly requires insured persons to repay benefits they have received in certain circumstances - where benefits were paid through error or fraud, where the person was disqualified from receiving them or where collateral payments are deductible. The arbitrator's authority extends to a determination of the insurer's right to repayment, and the amount of any repayment. The arbitrator's authority under the Insurance Act also includes the discretion to award an arbitration applicant his or her arbitration expenses and, subject to the regulations, the authority to determine the amount of those expenses.¹¹ As the arbitrator noted, parties may raise a number of issues for determination in a single arbitration, with the possibility of mixed results.

The question of set-off often arises when one party attempts to enforce payment of an amount owing. The parties here might have argued that this question should have been dealt with as an aspect of the enforcement process, rather than by the arbitrator. They did not do so, to my mind, quite sensibly. Both parties asked the arbitrator to address whether Allstate could deduct Mr. Boodhai's expenses, and to make an order that was responsive to their respective positions. Having heard the merits of the case, the arbitrator is in the best position to determine the appropriate order of payment as between competing claims by the two parties.

I agree with the arbitrator that "the central concern in most cases is whether the insurer is obliged to pay more money to the applicant". At the end of the arbitration process, the respective obligations of the parties will have been defined and determined, and the amounts they owe each other will have been fixed or are easily quantified. In this context, it is a matter of common sense that the arbitrator should be permitted to take the extra step of sorting out the net effect of his or her order or orders on the parties to the arbitration. In my view, this is a reasonable, sensible and necessary adjunct to the arbitrator's authority to deal with disputed issues about an insured person's entitlement to, and the amount of, statutory accident benefits and to award arbitration expenses.

Much of the argument rests on the form of the arbitrator's order. Mr. Boodhai argues that the arbitrator must provide discrete and isolated orders on the issues before him, to be enforced independently of each other. However, while subsection 279(4) requires an arbitrator to deal with issues before him or her by order, it does not dictate the form of the order. In my view, it is open to the arbitrator to provide an order that confirms the ultimate balance to be paid, after taking expenses into account.

This conclusion is consistent with the purpose and objectives of the dispute resolution scheme, which is to deal with accident benefit disputes quickly, relatively simply and with some finality. An interpretation that requires the arbitrator to ignore the ultimate positions of the parties, and forces them to pursue divergent streams of enforcement does not advance this objective. On the contrary, it involves unnecessary complexity and encourages multiple, split, proceedings.

Mr. Boodhai argues that a set-off of expenses raises particular concerns which underpin the arbitrator's lack of jurisdiction. He argues that an expenses order is intended to defray legal costs, not to meet other liabilities. Allowing a deduction of expenses frustrates the purpose of awarding them, which is to facilitate access to adjudication.

The inherent difficulty in this position is set out in the arbitrator's reasons. Under section 282(11) of the Insurance Act, expenses are awarded "to the insured person", not his or her representative. An insurer is liable for payment only to the extent of the amount that ultimately is found to be owing to the insured person, inclusive of expenses. While Mr. Boodhai has raised some serious policy concerns, I do not think that, viewed in the statutory context, these considerations change the underlying analysis and conclusion about the arbitrator's jurisdiction.

The sole issue before me is whether the arbitrator has the authority to make the order he made. I find that he does, and that such authority derives not from the purported exercise of equitable jurisdiction but from a purposive interpretation of the provisions of the Insurance Act and regulations. The appeal of the arbitrator's order is therefore dismissed.

IV. EXPENSES

Mr. Boodhai is entitled to his appeal expenses, although his appeal was unsuccessful. No reason was given why Allstate should not be permitted to deduct the amount of Mr. Boodhai's appeal expenses from the balance of the repayment owing, given the result of this appeal. Accordingly, I order that Allstate may do so.

September 18, 1996

Susan Naylor

Director’s Delegate

Footnotes

1. 1K.R. Palmer, The Law of Set-off in Canada, (Aurora: Canada Law Book, 1993) at 1.
2. 2Palmer (supra) page 9.
3. 3For the distinction between the two, see Telford v. Holt, 1987 CanLII 18 (SCC), [1987], 2 S.C.R. 193.
4. 4Courts of Justice Act, section 95.
5. 5Courts of Justice Act, section 96(3).
6. 6The Statutory Accident Benefits Schedule - Accidents on or after January 1, 1994, O. Reg. 776/93, sets out some rules on how overpayments may be collected. However, this more recent regulation does not apply to this case, and is of no assistance in interpreting the (pre-1994 accident) Schedule.
7. 7Subsection 279(1).
8. 8Sections 279, 280, 281(1) and (2) and sections 282(1) and (3).
9. 9Section 20.
10. 10Subsection 282(14).
11. 11Section 282(11).