Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2003 ONFSCDRS 120

Appeal P02-00028

OFFICE OF THE DIRECTOR OF ARBITRATIONS

ROMAN VOLFSON Appellant

and

OLGA SHUSTER and YURY SHUSTER and ROYAL & SUNALLIANCE INSURANCE COMPANY OF CANADA Respondents

Before: Nancy Makepeace

Representatives: Robert Ipacs for Mr. Volfson Michael Gulycz for Mr. and Mrs. Shuster Michael J. Huclack for Royal

Hearing Date: May 9, 2003

APPEAL ORDER

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

The appeal is allowed. The arbitration order, dated September 13, 2002, is revoked and replaced with the following:

The arbitration is withdrawn.

The parties shall bear their own appeal expenses.

August 7, 2003

Nancy Makepeace Director’s Delegate

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This appeal raises, once again, the problem of arbitration proceedings that are commenced or controlled by third-party treatment or assessment facilities through their paralegal representatives. The issue is whether the Arbitrator erred in law by ordering Roman Volfson, a paralegal associated with Universal Injury Rehabilitation Centre Inc. (“Universal”), to pay arbitration expenses as a party to the proceeding. I find that the Arbitrator exceeded her authority.

II. BACKGROUND

Olga Shuster and Yury Shuster were injured in a motor vehicle accident on April 28, 1999. They were treated for their injuries at Universal between June and August that summer. Royal & SunAlliance Insurance Company (“Royal”) paid for 15 physiotherapy sessions for each of the Shusters, pursuant to s. 38(16) of the SABS–1996,¹ but refused to pay the remaining fees. In October 1999, the Shusters retained Mr. Vadim Malyshev, of Pignalosa and Associates (“Pignalosa”), to apply for mediation with respect to the outstanding treatment expenses, weekly benefits and other issues.

At mediation in March 2000, the Shusters signed full and final releases in exchange for Royal’s agreement to pay them $6,500 each (for a total of $13,000). Out of this amount, they paid Universal $7,000, and Universal acknowledged, in writing, that the Shusters owed them nothing more. They also paid Mr. Malyshev’s fees, and obtained a letter from Pignalosa confirming they owed nothing more to the firm. No one disputes the Arbitrator’s finding that by March 17, 2000, all the issues relating to the Shusters’ accident benefits claims were concluded.

Nevertheless, applications for arbitration were filed in March 2001, signed by Roman Volfson. The applications were not signed by Mr. and Mrs. Shuster. Mrs. Shuster testified before the Arbitrator that the Notice of Pre-Hearing Discussion, dated April 26, 2001, was her first notice that an arbitration had been commenced. She testified that she phoned Mr. Malyshev, who eventually told her there had been an error and the pre-hearing would not take place. However, when Mrs. Shuster checked with the Commission’s case administrator, she learned the pre-hearing had not been cancelled. She phoned Mr. Volfson, who told her he would cancel it and she need not attend. However, when Mrs. Shuster phoned the Commission on the morning of the pre-hearing, she was told it was going ahead. She left her phone number and that of her husband so they could be contacted if needed. The Shusters’ businesslike vigilance in this matter is commendable.

Mr. Volfson and Mr. Malyshev appeared at the pre-hearing on July 11, 2001, stating they represented the Shusters. Mr. Peter Kazdan, a lawyer, appeared for Royal. Mr. Malyshev told the Arbitrator the proceedings were a mistake, and moved to withdraw the application. Royal did not oppose the motion, but sought an order for payment of its arbitration expenses under s. 282(11) of the Insurance Act and its assessment of $3,000 under s. 282(11.2) of the Act. The Arbitrator attempted to telephone the Shusters. She succeeded in reaching Mrs. Shuster, who said “she could not understand how she or her husband could be held financially responsible for an arbitration they had not started.”² The Arbitrator informed Mrs. Shuster there were signed authorization documents in both their names which appeared to authorize the arbitration. According to the decision, “Mrs. Shuster stated that neither she nor her husband had signed such documents.” She requested a hearing date “to get to the bottom of things.” The Arbitrator sent copies of the authorizations to the Shusters, along with the pre-hearing letter.

The hearing started on October 19, 2001. The issue was whether Mr. Volfson’s motion to withdraw the arbitration should be allowed, and if so, on what terms and conditions, in particular with respect to costs. The Shusters were now represented by Mr. Gulycz, Mr. Volfson had retained Mr. Ipacs, and Royal was represented by Mr. Huclack. The Arbitrator heard testimony from Mr. and Mrs. Shuster, Mr. Volfson, Mr. Malyshev, Mr. Kazdan, and Ms. Diane Kruger, a forensic document examiner. The main issue was whether Mr. and Mrs. Shuster had signed the authorization documents. The Arbitrator concluded they had not.

The Shusters denied signing the documents and testified that the signatures did not resemble their own. They also testified that the date on the authorizations B December 12, 2000 B was months after their last contact with Universal. The Arbitrator found the date discrepancy significant. She accepted the Shusters’ testimony that they had concluded their business with Royal, Universal and Pignalosa in March 2000. The Shusters did not seek to rescind that settlement. In fact, they had obtained documents to ensure there would be no further claims against them in the matter. The Arbitrator found the Shusters credible. She accepted their evidence that the authorizations were never presented to them for signature. She also accepted Ms. Kruger’s opinion that there were significant differences between the signatures on the purported authorizations and specimen signatures which were consistent with an attempt to simulate the genuine signatures. The Arbitrator concluded the signatures were forged. She did not accept Mr. Volfson’s testimony about how the authorizations came to be signed.

According to the Arbitrator, Mr. Volfson stated he wanted to obtain an expert opinion from a document examiner of his choice. The examiner attended at the Commission on October 30, 2001. When the hearing resumed on November 9, 2001, Mr. Volfson advised that for purposes of the hearing, he no longer disputed the Shusters’ allegation that they did not sign the authorizations. However, he did not admit any wrongdoing and did not concede he was a party who would be liable for costs.³

The Arbitrator drew the following conclusions:

Ms. Kruger’s reports set out the facts and documents on which she relied and the basis of her opinions, and I accept those opinions. I find the documents in question were not signed by Olga Shuster or by Yury Shuster. I also accept the Shusters’ testimony in this regard. Accordingly, I conclude that the documents which Mr. Volfson provided to FSCO were forged, and there was no authorization from Olga Shuster or Yury Shuster to commence these proceedings.

I find that in attempting to be paid twice for the Shusters’ treatment account when he knew that no moneys were owing and that there was no basis for the arbitration, Mr. Volfson abused the Commission’s process.⁴

After receiving Ms. Kruger’s reports, Royal abandoned its claim for costs against the Shusters and pursued Mr. Volfson for costs.

At the outset of the hearing, Royal sought an order that Mr. Volfson was a de facto party. Mr. Volfson argued that he was a witness who had been summonsed by Royal, not a party responsible for costs. The Arbitrator reserved on the issue, but treated Mr. Volfson as if he were a party for the purpose of the motion to determine his status. Ultimately, she drew the following conclusion:

I find that Mr. and Mrs. Shuster have no interest in the claims made in the arbitration application, and there is no issue in dispute between them and the Insurer, nor one between Universal and Royal. I find that there was no legislative authority to commence this proceeding. However, the Commission’s process was in fact engaged by Universal and Mr. Volfson. There is no evidence that this proceeding was commenced for the benefit of anyone other than Mr. Volfson and Universal, a treatment facility in which he is a partner. I find Mr. Volfson commenced this arbitration on his own account and is therefore a party to these proceedings. I agree with the submission of counsel for Mr. and Mrs. Shuster that in doing so he used the names of Olga Shuster and Yury Shuster as hollow, false labels. I have therefore amended the style of cause to reflect this finding, so that Mr. Volfson is listed as the applicant, Mr. and Mrs. Shuster as insured persons and Royal as the insurer of Mr. and Mrs. Shuster.⁵

As the proceeding was commenced without authority, the Arbitrator permitted Mr. Volfson to withdraw the application for arbitration. She then turned to the issue of arbitration expenses.

Mr. Volfson relied on a series of arbitration decisions holding that FSCO adjudicators have no authority to make a costs order against a representative. The Arbitrator concluded those decisions were distinguishable because they concerned orders against representatives as representatives, not against representatives who commenced an arbitration without authority. In the latter situation, since the person who commenced the unauthorized proceeding was a party to it, he was subject to the arbitrator’s authority to order payment of arbitration expenses. The Arbitrator concluded that she had authority to order Mr. Volfson to pay the Shusters’ and Royal’s arbitration expenses because he was the party who commenced the proceeding. She also concluded it was appropriate to do so, based on the criteria set out in the Expense Regulation.⁶ She urged Mr. Volfson “in the strongest possible terms to consider removing himself as an agent before this tribunal” because of his “flagrant abuse in this case.”⁷

However, she concluded she did not have authority to order Mr. Volfson to pay the insurer’s assessment under s. 282(11.2) of the Insurance Act. That section authorizes an award “to be paid by the insured person to the insurer” [emphasis added]. The Arbitrator refused to make an assessment order against the Shusters because she found they had no interest in the proceeding. Royal does not challenge these rulings.

Mr. Volfson appealed the expenses order. In a preliminary decision, I ruled that he had standing to appeal, under s. 283(1) of the Act, as a de facto party to the arbitration. I also dismissed the Respondents’ submission that the appeal was premature. Although the Arbitrator did not fix the amount of expenses payable, she made a final order about liability for expenses, subject only to assessing the amount, if necessary. This distinguished the case from the appeal in Gurevich and Royal & SunAlliance Company, which I rejected as premature because the Arbitrator had not yet made a final order joining Mr. Volfson and the other two representatives as parties.⁸ In this case, I acknowledged the appeal and stayed any further arbitration expenses proceedings pending the outcome.

III. ANALYSIS

In D’Angelo and Wawanesa Mutual Insurance Company, I held that FSCO adjudicators do not have authority to order a representative or other non-party to pay arbitration or appeal expenses under s. 282(11) of the Act.⁹ As my conclusion in that appeal confirmed “the overwhelming arbitral consensus” on point, I stated, “[t]his principle should now be recognized as settled law.”

Royal argues that an arbitrator’s authority to make an expenses order against a representative or other non-party arises, by implication, from s. 282(3) of the Insurance Act, which describes arbitrators’ subject-matter jurisdiction – “[a]n arbitrator shall determine all issues in dispute whether the issues are raised by the insured person or the insurer.”

In addition, Royal relies on the procedural powers granted in the Statutory Powers Procedure Act (the “SPPA”). Subsection 23(1) of the SPPA states, “[a] tribunal may make such orders or give such directions in proceedings before it as it considers proper to prevent abuse of its processes.” This codifies the common law principle that tribunals have power to make rules governing practice and procedure and to make procedural orders in any particular proceeding.¹⁰ It is well established that arbitrators have power to control their process in order to ensure a full and fair hearing consistent with the Commission’s mandate to reach “the most just, quickest and least expensive” resolution of disputes.¹¹ These principles are reiterated in the Dispute Resolution Practice Code (the “Code”). Royal relies on Rules 65.1 and 65.7:

65.1 An adjudicator will determine the issues before him or her by order and may make an order subject to such terms as he or she considers just.

65.7 An adjudicator may make such orders or give such directions as he or she considers proper to prevent an abuse of process.

Further, Royal submits that neither s. 282(11) of the Act, nor s. 12(2) of the Expense Regulation, restricts who may be ordered to pay expenses; these provisions state only that the arbitrator may award expenses “to the insured person or the insurer” [emphasis added]. The same language is used in Rule 75 of the Code, which reiterates the prescribed criteria an adjudicator must consider in exercising the discretion to award expenses. Though three of the six criteria pertain to “the insured person or the insurer,” the other three do not. One criterion, set out in paragraph 1, is “each party’s degree of success in the outcome” [emphasis added]. Paragraphs 4 and 6 refer to general matters without reference to the insured person or the insurer B “the degree of complexity, novelty or significance of the factual or legal issues,” and “any other matter related to the proceeding that the arbitrator considers relevant to the issue of whether an award of expenses is justified.”

Royal’s submissions, which were adopted by the Shusters, re-state the arguments presented in the previous decisions on this point. I heard nothing that would cause me to reach a different conclusion than the one I reached in D’Angelo. The main point is that the power to award costs is a substantive power that must expressly be granted by statute. For example, Rule 15.02(4) of the Rules of Civil Procedure¹² authorizes a court to order a solicitor to pay the costs of a proceeding commenced by the solicitor without the client’s authority, and Rule 57.07 authorizes a costs order against a solicitor who “caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence or other default.” The Insurance Act, as it currently reads, does not contain such a provision. Nor does the SPPA, which states only that a tribunal may make rules authorizing an order that a party pay all or part of another party’s costs.¹³ In the absence of express authority, arbitrators do not have power to order a representative to pay arbitration expenses.

However, this case differs from D’Angelo in that the Arbitrator added Mr. Volfson as a party before ordering him to pay the other parties’ expenses. The real issue, in this appeal, is whether she had power to do so. Royal submits that arbitrators must have this power if they are to control the process when it is engaged without authority, as happened in this case.

The Code does not set out a procedure for adding parties at arbitration or appeal, and does not contain a provision expressly giving FSCO adjudicators power to do so. The Insurance Act says nothing about adding parties. The SPPA expressly authorizes tribunals to make many other types of procedural rules, but does not contain express reference to adding parties. Nonetheless, the absence of an express statutory procedure for adding parties may not be determinative if persons other than insured persons and insurers are entitled to participate in accident benefits arbitrations. If they are so entitled, the power to join them would arise by necessary implication. In the absence of a rule in the Code, adjudicators could look for guidance to other analogous rules in the Code,¹⁴ or to the Rules of Civil Procedure, although the Rules do not apply to FSCO proceedings.¹⁵

Procedural questions aside, then, the essential question is whether someone who is neither an insured person nor an insurer can be a party to an arbitration proceeding. That is a substantive question.

Section 5 of the SPPA states:

The parties to a proceeding shall be the persons specified as parties by or under the statute under which the proceeding arises or, if not so specified, persons entitled by law to be parties to the proceeding.

The Insurance Act does not expressly state “the parties to a proceeding are the insured person and the insurer.” However, this is implicit in the provisions relating to mediation and arbitration.¹⁶ Subsection 280(1) of the Act states,

Either the insured person or the insurer may refer to a mediator any issue in dispute in respect of the insured person’s entitlement to statutory accident benefits or in respect of the amount of statutory accident benefits to which the insured person is entitled.

If mediation fails, the only parties that can initiate litigation or arbitration are the insured person or the insurer:

281(1) Subject to subsection (2) [mandatory mediation],

(a) the insured person may bring a proceeding in a court of competent jurisdiction;

(b) the insured person may refer the issues in dispute to an arbitrator under section 282; or

(c) the insurer and the insured person may agree to submit any issue in dispute to any person for arbitration in accordance with the Arbitration Act, 1991.

Unlike the superior courts, FSCO adjudicators do not have general jurisdiction. Their jurisdiction and powers are prescribed by statute. Subsection 279(1) of the Act describes the subject-matter jurisdiction for dispute resolution:

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 shall be resolved in accordance with sections 280 to 283 and the Statutory Accident Benefits Schedule.

That provision is broad enough to embrace all questions that arise in disputes between insured persons and insurers about accident benefits, but it does not, on its face, extend to disputes between insured persons and third-party treatment or assessment facilities, or to disputes between facilities and insurers. Implicitly, then, the Act establishes that the insured person and the insurer are necessary parties in dispute resolution proceedings. Are they the only proper parties, or can others be granted standing?

It can be argued that the second clause of s. 5 of the SPPA, which incorporates by reference the common law of standing, does not apply because the Insurance Act implies that the insured person and the insurer are the only proper parties in dispute resolution proceedings. A broader reading would allow an adjudicator to add a person other than an insured person or an insurer, if he or she has a sufficient interest in the issue in dispute. Assuming, for the purpose of this decision, that the latter is correct in law, a prospective party other than an insured person or an insurer must establish that he has an interest that is within the arbitrator’s jurisdiction. Did Mr. Volfson B or Universal B have standing to commence an arbitration? The answer given by Commission case-law is no.

This issue has arisen in a number of proceedings commenced or controlled by treatment or assessment facilities. In an early decision, Adusei and Royal Insurance Company of Canada, I concluded that a treatment facility could not commence proceedings in the name of the insured person by way of subrogation, assignment or authorization, on the basis that s. 281(1) established arbitration as an option for insured persons, not service providers. I also considered the policy implications:

Mr. Orr submitted [on behalf of the treatment facility] that policy considerations support the interpretation he would place on the statute. If treatment-providers could not commence arbitration proceedings, the insured person would be required to pay in advance and if necessary commence arbitration proceedings against the insurer. Alternatively, treatment-providers would have to provide treatment without any assurance of being paid, and then sue the insured person if he or she failed to pay. The insured person would then have to join the insurer as a third party in the action.

In my view, stronger policy considerations support the insurer’s interpretation of subsection 281(1). If treatment-providers could commence arbitration proceedings, an insurer could be required to respond to any number of applications from any number of treatment-providers, at a cost of $1,000 per application. If, on the other hand, the proceedings must be initiated by the insured person, it is more likely that all disputes between the insured person and the insurer will be determined in a single proceeding, thus avoiding a multiplicity of proceedings. It is also more likely that in such a proceeding, sufficient evidence will be brought forward to enable the arbitrator to determine whether the claimed medical or rehabilitation expense was a reasonable expense required as a result of the accident within section 6 of the Schedule. Finally, I cannot ignore the pressure of the volume of cases on the arbitration system.

In the absence of a statutory provision giving treatment-providers the right to commence arbitration proceedings, and given the language of subsection 281(1), I find that the authorization signed by Mr. Adusei for Premier is not effective to give Premier the right to commence this proceeding.¹⁷

Subsequent decisions have affirmed this view.¹⁸

Adusei was decided under the SABS-1990,¹⁹ which was silent on the common practice of direct billing. That omission has now been remedied. Paragraph 44(2)(a) of the SABS-1996 states, “an insurer may arrange to be invoiced directly and to pay directly for goods or services provided in respect of an insured person.”²⁰ I discussed the policy reasons for allowing direct billing in Smith and Citadel General Assurance Company:

Direct billing by service providers can benefit insurers and insured persons, as well as service providers, by reducing administrative costs. As suggested by the Arbitrator, it also encourages early treatment and rehabilitation, an important goal of the accident benefit scheme.²¹

However, I noted, without deciding the point, that the wording of s. 44(2)(a) “suggests direct billing should be arranged with the insurer in advance.” Director Draper took a stronger position in Tanzos, stating that direct billing “is at the option of the insurer.” The important point, in the context of this appeal, is that direct billing is not at the unilateral option of a treatment or assessment facility. In any event, the benefits remain those of the insured person, not the treatment or assessment facility. Director Draper addressed this point, as well, in Tanzos:

Direct billing was introduced to streamline the payment of benefits. It allows insurers to deal directly with service providers for the convenience of everyone involved. However, direct billing is only about payment. It does not change the fundamental nature of the claims process. Claims are still made by the insured person, and any resulting dispute is between the insured person and the insurer, not between the service provider and the insurer. It follows that the dispute resolution process is for disputes between insured persons and insurers.²² It is not meant to serve the needs of creditors, including service providers, who want to collect their accounts.²³

Also introduced in the SABS-1994 was a “no assignment” provision (s. 90(1)), which was continued in s. 65(1) of the SABS-1996. It states,

The assignment of a benefit under this Regulation is void.

The direct billing and no-assignment provisions were intended to prevent the problems that arise when claims are directed or controlled by third-party treatment or assessment facilities. The main risk is that the referral and claim may be driven by the facility’s interests, not the interests of the insured person.

There are additional problems when a facility or a representative associated with a facility pursues a disputed claim through mediation and arbitration. Insured persons are entitled to retain someone to represent them in dispute resolution proceedings, but “the insured person must retain control over, and responsibility for, the proceedings.”²⁴

This case represents the worst-case scenario. The Arbitrator found that Mr. Volfson attempted to be paid twice for the Shusters’ treatment at Universal “when he knew that no moneys were owing and that there was no basis for the arbitration.”²⁵ I agree with the Arbitrator’s conclusion that Mr. Volfson abused the Commission’s process. The Arbitrator’s decision to amend the style of cause was motivated by that conclusion:

This was an understandable attempt to fashion a remedy that placed the financial responsibility for an unauthorized proceeding where it belonged B in Mr. Volfson’s hands. However, I conclude that the Arbitrator exceeded her powers in making the order. To test that proposition, one need only ask whether Mr. Volfson would have been entitled to commence a proceeding in his own name or Universal’s. Adusei supplies the answer: no.

It is tempting to say there is an exception to that rule when a person other than an insured person or an insurer wrongfully engages the Commission’s process, but this just makes it clear that the reason for joining Mr. Volfson is to order him to pay the other parties’ arbitration expenses. This would allow an arbitrator to do indirectly what she cannot do directly B make an expenses order against someone other than an insured person or an insurer. I am not persuaded this is permitted under the Insurance Act or the SPPA.

Finally, though I need not do so in order to dispose of the appeal, I will address Mr. Volfson’s submissions about alternative remedies, because they illustrate his approach to the Commission’s process.

Mr. Volfson submits that the Commission could have rejected the application for arbitration at the outset, thereby avoiding the costs incurred to the Shusters and Royal, pursuant to Rules 25.4 and 25.5 of the Code. Rule 25.4 states that where “it appears that an Application for Arbitration is incomplete, has been received after the time required for commencing the proceeding has elapsed, exceeds the jurisdiction of the dispute resolution process under the Insurance Act and its Regulations, or is frivolous, vexatious or an abuse of process,” the applicant will be given an opportunity to satisfy the Commission’s concerns or rectify the deficiencies in the application, before the application is rejected.²⁷ In addition, Rule 68 of the Code permits an arbitrator to dismiss a proceeding without a hearing where the proceeding is “frivolous, vexatious or is commenced in bad faith.”²⁸ Alternatively, Mr. Volfson submits the Arbitrator could have excluded him from the hearing under s. 23(3) of the SPPA.²⁹

Mr. Volfson’s refusal to take responsibility for his conduct is appalling. It was Mr. Volfson who commenced the proceeding by signing the Application for Arbitration and presenting authorizations bearing signatures that appeared to be those of Olga Shuster and Yury Shuster. Commission staff took steps to confirm his authority:

When the Registrar’s office received Mr. Volfson’s applications for arbitration, that office was prompted to make an inquiry of Mr. Volfson. According to a note at the bottom of one of the arbitration applications dated March 26, 2001, “Spoke to Mr. Volfson. He confirmed that the insurance co. after mediating refuses to pay.”³⁰

It was only the Shusters’ vigilance that brought the matter to light before the pre-hearing. Mr. Volfson then moved to withdraw the application. When Royal insisted on reimbursement for its arbitration expenses, Mr. Volfson forced the matter to a hearing, challenging the Shusters’ credibility, and forcing Royal to call a forensic document examiner to prove the authorizations were forged. Mr. Volfson’s pursuit of this matter is inconsistent with his claim that he was the victim of a mistake the Commission should have caught. His conduct does not meet the standard of conduct expected of a representative in accident benefits proceedings.

IV. EXPENSES

Fairness calls for Mr. Volfson to pay the appeal expenses of the Shusters and Royal. However, for the reasons given above, I find I have no power to order him to do so. Whether the parties have a civil remedy is a question beyond my jurisdiction.