Zagorac v. Canadian General Insurance Company, 1996 ONICDRG 159

ONTARIO INSURANCE COMMISSION

Neutral Citation: 1996 ONICDRG 159

OIC A-006192

BETWEEN:

ZORAN ZAGORAC

Applicant

and

CANADIAN GENERAL INSURANCE COMPANY

Insurer

DECISION ON EXPENSES

Issues:

The Applicant, Zoran Zagorac, was injured in a motor vehicle accident on June 27, 1990. He claimed statutory accident benefits from Canadian General Insurance Company (the Insurer), payable under Ontario Regulation 672.¹ Mr. Zagorac applied for arbitration under the Insurance Act, R.S.O. 1990 c.I.8. as amended. Mr. Zagorac was awarded the expenses of his arbitration pursuant to section 282(11) of the Insurance Act and interest on overdue payments pursuant to the provisions of section 24(4) of the Schedule in a decision dated December 15, 1995. The parties were unable to reach an agreement concerning certain expenses claimed by the Applicant or the calculation of interest on overdue payments. The issues in this assessment are:

1. Is Mr. Zagorac entitled to payment of GST on lawyer's fees and disbursements?

2. Is Mr. Zagorac entitled to payment of interest on these expenses, calculated on a simple or compounded basis?

Result:

Canadian General is required to pay the following amounts, to the extent that they have not already been paid:

1. GST in the amount of $1,007.77 on lawyer's fees totalling $14,396.68;

2. GST in the amount of $442.18 on disbursements totalling $6,316.84; and

3. interest on the total expenses of $22,163.47 in the amount $3,102.89 calculated at the rate of 2% per month, not compounded, from December 15, 1995 to the date of payment.

Hearing:

The assessment hearing was held by telephone conference call on July 4, 1996, before me, Janice Mackintosh, arbitrator. An oral decision was rendered on that date, with written reasons on the issues of GST and interest to follow. These are the written reasons.

Present at the Hearing:

Applicant's Representative:

Rhona L. Waxman Barrister and Solicitor

Insurer's Representative:

James Dunn Barrister and Solicitor

Documents before the arbitrator are listed in Appendix A to the decision.

Reasons for Decision:

The arbitration hearing took place over six days in November, 1994 and January, 1995. Mr. Zagorac was awarded the expenses of the arbitration hearing. Mr. Zagorac's counsel issued an account for lawyer's fees and disbursements, charging goods and services tax (GST) on those fees and disbursements, as required by law. Mr. Zagorac seeks payment of his lawyer's account including the GST charges, as an expense of the hearing. At the conclusion of their respective submissions concerning the amount of fees and disbursements billed, the parties accepted the following figures:

Lawyer's fees

$14,396.68

Disbursements

$6,316.84

If payable, GST is calculated at $1,007.77 on legal fees and $442.18 on disbursements. Mr. Zagorac also seeks payment of interest on these expenses at the rate of 2% per month, compounded monthly. The Insurer disputes Mr. Zagorac's claims for GST and compound interest.

The Issue of Goods and Services Tax:

Section 282(11) of the Insurance Act limits an arbitrator's jurisdiction to award expenses to those expenses set out in the regulations within the maximums set out in the regulations. Schedule 1 of Ontario Regulation 664, R.R.O. 1990, (Schedule 1) specifies the allowable expenses. Schedule 1 is substantially restated in section F of the Dispute Resolution Practice Code.

Counsel for the Insurer submits that an arbitrator has no inherent jurisdiction to award expenses other than those specifically set forth in Schedule 1. He maintains that Schedule 1 makes no provision whatsoever for GST and therefore none can be awarded.

Counsel for Mr. Zagorac submits that GST is a legitimate disbursement and out-of-pocket expense and is therefore recoverable under subsection 4 of section 4 of Schedule 1. Section 4 of Schedule 1 provides as follows:

4. The amount of the following disbursements made by or on behalf of the insured person may be awarded:

5. For long distance telephone, facsimile and other telecommunication charges.

6. For typing, printing and reproducing copies of documents.

7. For the delivery, by mail or courier, of items relating to the arbitration, appeal or variation hearing.

8. For other out-of-pocket expenses incurred in furtherance of the arbitration, appeal or variation hearing. (Emphasis added)

GST must be charged on goods and services provided by a lawyer. Is GST a disbursement within the meaning of section 4? Mr. Zagorac's counsel pointed out that "goods and services tax actually paid or payable on the solicitor's fees and disbursements..." appears under the heading of "Disbursements" under Tariff A of the Rules of Civil Procedure.² GST is also included as a disbursement under the Legal Aid Tariff Manual.³ I am satisfied that GST may be characterized as a disbursement falling within the purview of section 4 of Schedule 1.

There is no dispute that lawyer's fees in the amount of $14,396.68 and disbursements in the amount of $6,316.84 were incurred in furtherance of the arbitration. I therefore conclude that GST charged on these fees and disbursements was also incurred in furtherance of the arbitration. While it is true that Schedule 1 contains no specific reference to GST, subsection 4.4 is a general provision which enables an arbitrator to award out-of-pocket expenses that are not specifically listed, provided that they are in furtherance of the arbitration. I therefore award the amount of $1,449.95 billed with respect to GST on legal services and disbursements as an allowable expense under subsection 4.4 of Schedule 1.

Issue of Simple or Compound Interest:

Mr. Zagorac was awarded interest on overdue payments in accordance with the provisions of section 24(4) of the Schedule. Section 24(4) provides as follows: "The insurer will pay interest on overdue payments from the date they become overdue at the rate of 2 per cent per month."

Mr. Zagorac states that section 24(4) means 2 per cent per month compounded, whereas the Insurer submits that it means 2 per cent per month simple interest.

Interest is defined by Black's Law Dictionary as the compensation allowed by law or fixed by the parties for the use or forbearance or detention of money. Simple interest is that which is paid for the principal or sum lent or detained. Compound interest is interest upon interest where accrued interest is added to the principal sum, and the whole treated as a new principal, for the calculation of the interest for the next period.

Mr. Zagorac submits that because the rate of interest is stated to be 2 per cent per month rather than 24 per cent per year, the inference is that interest is to be compounded monthly. Mr. Zagorac relies on the case of General Investments Inc. v. Sharon Louise Chester⁴ in support of his submission. In that case, the court considered whether an interest provision contained in a mortgage meant "compounded" or "simple." The mortgage provided for interest "... at the rate of 2 per cent per month, or 26.8 per cent per annum, calculated monthly, not in advance." (emphasis added)

The court accepted the view of Macdonald J. in Lynch v. Elford Estates Ltd.⁵ that the insertion of the word "calculated" when used in the context of an interest computation must be read as meaning "compounded" and that the words "calculated," "compounded," "computed," or "convertible" are considered to be synonymous terms in the context of mortgages.

I also accept the view that a rate of interest, qualified by the words "calculated" together with a time frame, as contained in the interest provisions considered in General Investments Inc. v. Sharon Louise Chester⁶ and Lynch v. Elford Estates Ltd.⁷ is a clear direction to compound the specified rate with a certain frequency. However, section 24(4) of the Schedule simply states the interest rate of "2 per cent per month" (as in the case, General Investments) with no qualifying words such as "calculated" or "compounded" or any direction concerning the frequency of calculation or compounding. In contrast, subsection 282 (10) of the Insurance Act expressly provides for interest "at the rate of 2 per cent per month, compounded monthly, from the time the benefits first became payable." In the absence of similar qualifiers in section 24(4) I conclude that simple, rather than compound, interest was intended.

I also adopt the reasoning of Arbitrator Makepeace in the decision McMaster and Dominion Insurance Company of Canada.⁸ She concludes that subsection 24(4) of the Schedule merely imposes a charge for an insurer's use of money which is overdue to an applicant, whereas section 282(10) of the Act is intended to penalize an insurer for the unreasonable withholding of money due to an applicant. In my view the different intent of the two sections is reflected and supported by the different treatment given to the calculation of interest.

For these reasons, I conclude that Mr. Zagorac is entitled to payment of interest on his expenses calculated on a simple, rather than a compound, basis.

ORDER:

Canadian General is required to pay the following amounts, to the extent that they have not already been paid:

1. GST in the amount of $1,007.77 on lawyer's fees totalling $14,396.68;

2. GST in the amount of $442.18 on disbursements totalling $6,316.84; and

3. interest on the total expenses of $22,163.47 in the amount $3,102.89 calculated at the rate of 2% per month, not compounded, from December 15, 1995 to date of payment.

September 20, 1996

Janice Mackintosh Arbitrator

Date

Appendix A

Documents before the Arbitrator in the Expense hearing:

1. Letter from Samis, Blouin, Dunn, Barristers & Solicitors to OIC dated February 23, 1996

2. Written submissions for Zoran Zagorac on the issue of compound versus simple interest filed by Waxman, Carpenter-Gunn, April 2, 1996 - 5 tabs.

3. Written submissions for Zoran Zagorac on the issue of expenses and GST filed by Waxman, Carpenter-Gunn, April 2, 1996 - 4 tabs.

4. Written submissions of Canadian General Insurance Company re. interest and expenses filed by Samis, Blouin, Dunn, June 10, 1996 - 11 tabs.

5. Letter from Samis, Blouin, Dunn, Barristers & Solicitors to OIC dated June 4, 1996, filed July 4, 1996.

Footnotes

1. 1Prior to January 1, 1994, Ontario Regulation 672 was called the No-Fault Benefits Schedule. After that date it became the Statutory Accident Benefits Schedule — Accidents Before January 1, 1994. In this decision, the term "Schedule" will be used to refer to Regulation 672.
2. 2Tab 4, Applicant's submission re: expenses, item 36
3. 3Tab 3, Applicant's submissions re: expenses, item number 1020 of the Legal Aid Tariff Manual
4. 4Tab 2, Applicant's submissions re: interest - (1991), 7 B.L.R. (2d) (79), (B.C.S.C.)
5. 5(1986), 1986 CanLII 970 (BC SC), 6 B.C.L.R. (2d) 69, (S.C.)
6. 6Ibid footnote 4
7. 7Ibid footnote 5
8. 8Tab 2, Insurer's submissions, OIC A-006025, dated October 26, 1994