Neutral Citation: 1998 ONFSCDRS 25

FSCO A96-001570

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

SUSAN VAN CLIEF

Applicant

and

ROYAL INSURANCE COMPANY OF CANADA

Insurer

DECISION on a PRELIMINARY ISSUE

Issue:

This case involves the question of when real estate commissions become income for the purpose of calculating weekly income benefits.

The Applicant, Susan Van Clief, worked as a real estate agent until she was injured in a car accident on July 15, 1993. Royal Insurance Company ("Royal") agreed she was entitled to weekly income benefits¹, but disputed whether the amount should include a commission received by Ms. Van Clief within the 52-week period before the accident under an Agreement of Purchase and Sale executed before the 52-week period began.

The parties agree that if the commission is included in the calculation, the correct amount of the weekly income benefit, subject to deductions for post-accident income, is $600; if it is not included, the correct amount is $216.16.

The issue in this hearing is:

1. What is the correct amount of weekly income benefit that Ms. Van Clief is entitled to under section 12 of the Schedule?

Ms. Van Clief also claims her expenses incurred in the hearing.

Result:

1. The correct amount of Ms. Van Clief’s weekly income benefit is $216.16, subject to any deductions for post-accident income.

2. Ms. Van Clief is entitled to her expenses of the arbitration.

Factual Background:

At the time of this accident, Ms. Van Clief was 48 years old and was a real estate agent with Royal Canada Real Estate Limited (Royal Real Estate). Her earnings arose solely from commissions.

Following this accident, when Ms. Van Clief was unable to work because of her injuries, she claimed weekly income benefits from Royal. According to section 12(4) of the Schedule, weekly income benefits are based on 80 percent of the insured person's pre-accident income, up to a maximum of $600. The calculation of pre-accident income is set out in section 12(7):

12.-(7) The following rules apply to the calculation of gross weekly income:

1. A person's gross weekly income shall be deemed to be the greatest of,

i. his or her average gross weekly income from his or her occupation or employment for the four weeks preceding the accident,

ii. his or her average gross weekly income from his or her occupation or employment for the fifty-two weeks preceding the accident,

iii. $232

This means that Ms. Van Clief's weekly income benefits are calculated based on 80 percent of her average gross weekly income for either the 4 or 52-week period preceding the accident, whichever is greater. Ms. Van Clief designated the 52-week period before the accident. The difficulty is that she wishes to include in that period a commission that she earned from the sale of a commercial property on Keele St., in Vaughan.

The commission arose from an Agreement of Purchase and Sale (Agreement) executed on June 12, 1992, before the commencement of the 52-week period preceding the accident. The Agreement provided for a commission of 4% "upon the closing of the transaction," and was conditional for a 30-day period in order to allow the purchaser to inspect the property. Mark Baker, the solicitor for the purchaser, testified that by letter dated July 13, 1992, he advised the vendor that the purchaser had completed its inspections and waived the condition. Mr. Baker stated that in his view, the Agreement "became firm, binding and unconditional on July 13, 1992."

The transaction closed on September 1, 1992, and Ms. Van Clief received her commission, in the sum of $43,133.92, ten days following.

Analysis:

The issue in this case is when real estate commissions become "income" within the meaning of section 12. Ms. Van Clief asserts that her commission from the Keele St. property was not income until the date of closing, and therefore can be included in the 52-week period before the accident (the "closing date" approach). Royal argues that the commission became income on July 13, 1992, when the condition regarding inspection was waived and the agreement became unconditional (the "agreement date" approach). As this date precedes the 52-week period before the accident, the commission would not be included as part of her pre-accident income. Because of the large amount of the commission in question, the result makes a considerable difference to the amount of her weekly income benefit.

Ms. Van Clief relies on the decision of M.P. and Dominion of Canada General Insurance Company² In that case, Mr. P. argued for the "closing date approach." He asserted that his income in the four weeks before the accident included two sales that closed within that period, although the Agreements of Purchase and Sale had been executed earlier. The insurer urged the "agreement date" approach. Senior Arbitrator Naylor found that the Applicant's real estate commissions were earned on the date of closing, "because he had no entitlement to payment on the basis of merely procuring the valid offer to purchase..."

As Royal noted, this part of the decision in M.P. was obiter; Senior Arbitrator Naylor found that Mr. P. was not entitled to weekly income benefits because he was not disabled from his employment. Having reached that conclusion, she was not required to decide the correct amount of his benefit. More importantly, her decision did not deal directly with the question of whether a commission is earned on the date a conditional sale becomes unconditional. By contrast, in the appeal decision of Gaudreault and Pilot Insurance Company,³ Director's Delegate Draper considered precisely this issue. He noted that because the point where real estate commissions are earned will vary in each case, no uniform approach can be adopted. He emphasized that "the critical time is when the income is earned, rather than the date of payment," and concluded that "the point at which there is an unconditional agreement of purchase and sale is the most likely time" when the commission is earned.

In my view, it makes sense to ascribe the commission to the agent at the point where the agreement becomes unconditional. The agreement has then become firm and she is entitled to the commission. Although it has not yet been paid to her, she has earned it. I agree with the reasoning expressed by Arbitrator Makepeace in Ferrari and Royal Insurance Company,⁴ who noted that "the legislative purpose underlying section 12 [is] to recognize income when it is earned" (my emphasis).

Ms. Van Clief argued that although the condition regarding inspection was waived by the purchaser on July 13, 1992, other conditions remained, and therefore the transaction did not truly become unconditional until the closing date. I disagree. There is nothing to contradict Mr. Baker's evidence that the agreement became "binding and unconditional" upon delivery of his letter of July 13th. Ms. Van Clief pointed to Mr. Baker's statement in that letter that "all other terms and conditions of the Agreement of Purchase and Sale to remain in force in accordance with their terms." (my emphasis) But Mr. Baker testified that after July 13th there were no conditions remaining that would have allowed the purchaser to resile from the agreement; at most, each party had standard obligations to fulfill, such as satisfying requisitions and the provision of further deposits. If Ms. Van Clief is correct, no agreement is truly "unconditional" until the closing date, a position that is clearly at odds with real estate practice.

Ms. Van Clief also argued that she continued to perform a significant amount of work even after the condition regarding inspection was waived, and therefore should be recognized as having "earned" income until the closing date. She stated that she verified the zoning, ensured the underground storage tanks were removed, arranged for the leasing of the property, and delivered various documents to the purchaser. However, most of these tasks were completed on or before July 13th. Moreover, they were more in the nature of "fence minding," as described by Mr. Baker; Ms. Van Clief was there simply to ensure that the parties fulfilled their commitments. But with or without her presence, the parties were required to satisfy their obligations and complete the transaction. And the evidence indicates that in this case both parties were keen to do so.

In any case, as Director's Delegate Draper noted in Gaudreault, the "work-based" approach is problematic, because real estate agents are not paid in direct relation to the work they do, and because it is difficult to identify when the work is completed. For example, in this case, if one adopted a pure "work-based" approach, it would be necessary to allocate which portion of the commission was earned before the 52-week preceding the accident and which after. Such a cumbersome process defeats the legislative goals of simplicity and predictability.⁵

I recognize that the result in this case seems harsh. The agreement in question became unconditional just two days before the 52-week period began, and therefore Ms. Van Clief only narrowly missed being able to include the commission in her pre-accident income. But the "closing date" approach creates similar hardship in cases where the agreement becomes unconditional within the 52 weeks preceding the accident but does not close until days after.

Ms. Van Clief argued that because the legislation is remedial it should be liberally construed, and therefore arbitrators should adopt whichever of the "closing date," "agreement date," and "work-based" approaches is most advantageous to the particular applicant. I reject that submission. Although each case must be assessed on its own facts, the parties are entitled, within reason, to expect guidance and consistency from this tribunal. It is to that end that arbitrators have developed the principle that income should be recognized when it is earned, rather than received. To deviate from that principle on a case by case basis, solely in order to favour applicants, would undermine the equally important legislative goals of neutrality and fairness.

Expenses:

Although the issue raised in this case is not novel, its resolution was not so obvious as to disentitle Ms. Van Clief from recovering her expenses of the arbitration.

Order:

1. The correct amount of Ms. Van Clief’s weekly income benefit is $216.16, subject to any deductions for post-accident income.

2. Ms. Van Clief is entitled to her expenses of the arbitration.

August 24, 1998

Deena Baltman

Arbitrator

Date

Appendix

Hearing:

The hearing was held at the offices of the Financial Services Commission of Ontario in North York, Ontario, on July 23, 1998, before me, Deena Baltman, Arbitrator.

Present at the Hearing:

Applicant:

Susan Van Clief

Ms. Van Clief’s Representatives:

Bert Raphael Barrister and Solicitor

Leslie Dorrett Barrister and Solicitor

Royal's Representatives:

Stanley C. Tessis Barrister and Solicitor

Jamie Pollack Barrister and Solicitor

Witnesses:

The Applicant Mark Baker

Exhibits:

Affidavit of Mark Baker

Footnotes

1. 1Under the Statutory Accident Benefits Schedule — Accidents On or Between June 22, 1990 and December 31, 1993, Regulation 672 of R.R.O. 1990, as amended by Ontario Regulations 660/93 and 779/93.
2. 2(OIC A-001478, 21, 1993, confirmed on appeal October 29, 1996)
3. 3(OIC P-007144, November 2, 1995)
4. 4(OIC A-007313, September 8, 1994)
5. 5Toward the end of the hearing, Ms. Van Clief requested an adjournment in order to arrange for the purchaser to testify about the work she performed prior to closing. I declined to adjourn the matter as in my view, the Applicant could and should have arranged for this evidence in advance. In any case, given my reservations about the "work-based" approach, it is unlikely that this evidence would have significantly altered the outcome.