Neutral Citation: 2004 ONFSCDRS 185

FSCO A03-000765

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

JERZY OLSZEWSKI

Applicant

and

CITADEL GENERAL ASSURANCE COMPANY

Insurer

DECISION ON A PRELIMINARY ISSUE

Before:

John Wilson

Heard:

September 10, 2004, in London, Ontario.

Appearances:

Philip B. Morrissey for Mr. Olszewski

Claude Blouin for Citadel General Assurance Company

Issues:

The Applicant, Jerzy Olszewski, was injured in a motor vehicle on November 27, 1990. I originally heard this matter on July 30, 2003. The issue at that hearing was:

Is Mr. Olszewski precluded by res judicata or issue estoppel from proceeding to arbitration because the claim put forward in this arbitration application was the subject of a previous arbitration and appeal proceeding?

Following that hearing, I issued an interim decision¹, and requested that the parties address some particular sub-issues that had arisen. In the conclusion to the interim decision, I wrote:

I accept that the Smith decision may well have set a new standard for the evaluation of the sufficiency of refusals to pay benefits. If this decision applies to the OMPP Schedule² in as radical a manner as it does to the Bill 164 Schedule? then it would be a clear example of the "new law" exception to res judicata. It would also be a strong reason to use judicial or arbitral discretion to refuse to apply issue estoppel.

The Smith decision may well have changed the law in general relating to accident benefits, but, however, it is not clear whether it changed the law relating to the specific refusal of Mr. Olszewski's claim by his Insurer.

Essentially the first issue to be addressed was the degree to which Smith applied to the statutory accident benefits scheme under which Mr. Olszewski claims, and the effect that has on the particulars of Mr. Olszewski's claim.

I also raised the question of how, procedurally, Mr. Olszewski should have initiated this process.

In light of Rule 61 of the Practice Code,³ it is unclear whether, given the existence of a previous ruling on his claim, Mr. Olszewski must pursue his claim by means of an application for variation and revocation, and whether an arbitrator would have jurisdiction to hear this matter, on its merits, as presently framed.

The second issue, then, was whether Mr. Olszewski should have proceeded by way of an application to vary or rescind, pursuant to Rule 61, and whether this has consequences for the re-hearing of his claim.

Result

1. Smith v. Co-operators has had the effect of altering the law and practice at the Commission with regard to the termination of accident benefits. Consequently, neither Res Judicata nor Issue Estoppel act to bar the hearing of Mr. Olszewski's substantive claim.

2. Mr. Olszewski is not barred from arbitration by reason of his decision not to proceed by way of Variation/Revocation.

3. I exercise my discretion to award Mr. Olszewski his expenses incurred in this preliminary issue hearing. If the parties are unable to agree on the amount of those expenses, they may contact the case administrator to set a date to speak to that issue.

Smith and the OMPP

Few decisions have sparked so much controversy in the field of accident benefits as Smith v. Co-operators⁴ By emphasizing the consumer protection side of the accident benefits schedule, the Supreme Court opened the door to a new look at many long-accepted practices.

Although the decision dealt specifically with the requirements to terminate benefits under the Bill 164 Schedule, Gonthier J.'s reasons were couched largely in the generalities of statutory interpretation and appear to have wider application.

The specific issue of notice to an insured about the availability of the dispute resolution procedure to challenge an insurer's refusal is one key area that the Bill 164 and the OMPP Schedules differ. In Smith, the court held that the failure to communicate that particular information to its insured was fatal to the validity of the refusal.

The obligation to communicate information about the dispute resolution process derives from section 71 of the Bill 164 Schedule.

Section 24(8) of the OMPP Schedule⁵ sets out the criteria for a refusal of a benefit by an insurer:

If the insurer refuses to pay an amount claimed in an application for statutory accident benefits, the insurer shall forthwith give written notice to the insured person giving the reasons for the refusal.

There is no comparable provision to section 71 to require mention of the dispute resolution process, nor a definition of what must be contained in the reasons.

Gonthier J.'s decision, however, appears to be based on more than just the section 71 requirements.

Smith has been taken to mean that "it is clear that a limitation period will not begin to run until there has been a proper refusal to pay benefits, where the commencement of the limitation period is fixed by the conduct of the insurer in refusing payment."⁶

While the OMPP legislation does not have the equivalent of the section 71 considered in Smith, it nonetheless has specific termination procedures.

Section 24(8) of the Regulation sets out the Insurer's obligations with regard to termination.

If the insurer refuses to pay an amount claimed in an application for statutory accident benefits, the insurer shall forthwith give written notice to the insured person giving the reasons for the refusal.

The Divisional Court in Turner (supra) also makes it clear that the reasons cannot be specious, and need to be the correct reasons.

State Farm takes the position that the legislation does not require that the reasons be correct reasons. Mr. Franklin submits that if it had been the intention of the legislature that insurers were to provide claimants with the correct reasons for the insurer's refusal, it could have said so. With respect, we think this submission is absurd. The only reasonable interpretation of the provision would be for the insurer to provide to the claimant the real basis upon which the insurer was refusing to pay benefits. It is only by knowing the basis for the refusal that the claimant can make an informed decision whether or not to take further steps.

Director's Delegate Makepeace in the Turner⁷ appeal at the Commission briefly summarized what she considered to have been the state of the law on termination prior to Smith. While accepting that notice had to be clear and unequivocal, she was ready to accept substantial compliance with the notice requirement as being sufficient.

I find that the arbitrator erred in law by considering prior and subsequent events in concluding that State Farm provided clear and unequivocal refusal of benefits, triggering the limitation period. However, the error is not fatal to his decision, because he did not err in finding that the notice given, while imperfect, was substantially clear.

While I accept that the decision of the Director's Delegate was completely consistent with the contemporary line of decisions at the Commission dealing with termination, the Divisional Court, drawing on Smith, clearly felt that the Commission's approach was inadequate.

In our view the insurer's obligation under section 24(8) of the Statutory Accident Benefits Scheme can, by way of analogy, be compared to the obligation that the Supreme Court considered in Smith (supra). Until Section 24(8) has been complied with, there has not been a clear and unequivocal refusal which the law requires.⁸

If the Divisional Court is correct in its interpretation of Smith, then that decision appears to have had a substantial effect on the standards required of an insurer in effecting termination; standards that are not necessarily restricted to the Bill 164 Schedule at question in Smith.

While the Court of Appeal has yet to rule on the ultimate application of Smith, the immediate effect on arbitrations at the Commission has been significant. Director's Delegate McMahon as early as September 2002 noted its impact on the law⁹:

In my view, the recent Supreme Court decision in Smith v. Co-operators General Insurance Co., 2002 SCC 30, [2002] S.C.J. No. 34, which dealt with the interaction between the limitation periods and the information an insurer must provide at the time it refuses benefits, disposes of this appeal. In fairness to everyone concerned, I note that the Supreme Court's decision, which significantly expanded on the information that was typically provided by insurers, was not released until after this appeal had already been commenced. The Smith decision dramatically altered the course of this appeal, which would otherwise have failed.

Likewise, in Antony, Director's Delegate Makepeace has noted the trend of decisions relying on Smith.

In at least three recent arbitration decisions,¹⁰ Arbitrators have applied Smith in the context of s. 32, holding that an insurer will not be able to rely upon the 30-day time limit for submitting an application for benefits unless it has given notice of the time limit and the consequences of non-compliance.¹¹

Even without a definitive decision on the issue, it is apparent that the Smith decision has implications for accident benefit claims under all the different statutory regimes. Where clear notice must be given by an Insurer, Smith speaks to the nature and quality of that notice.

It goes without saying that in Mr. Olszewski's case, the application of the requisite time limit to the arbitration is contingent upon the existence of a notice that is compliant with section 24(8) of the OMPP Schedule. I accept that the decision of the Supreme Court in Smith is relevant to the OMPP notice requirements, and has substantially changed the law that would be applied by an arbitrator to such notice.

As noted in my previous decision in this matter, a change in the law can have important implications for the application of res judicata or issue estoppel.

Exceptions may occur if there are new facts or circumstances that were unknown to the parties at the time of the original decision. In Arnold v. National Westminster Bank plc ([1991] 2 A.C. 93, p. 110) the House of Lords adopted the words of Browne-Wilkinson V.C. of the Chancery Division in stating:

In my judgement a change in the law subsequent to the first decision is capable of bringing the case within the exception to issue estoppel. If, as I think, the yardstick of whether issue estoppel can be held to apply is the justice to the parties, injustice can flow as much from a subsequent change in the law as from a subsequent discovery of new facts. In both cases the injustice lies in a successful party to the first action being held to have rights which in fact he does not possess. I can therefore see no reason for holding that a subsequent change in the law can never be sufficient to bring the case within the exception. Whether or not such a change does or does not bring the case within the exception must depend on the exact circumstances of each case.

This approach has been specifically adopted in Ontario by the Court of Appeal in Robb v. St. Joseph Health Care (2001) O.J. No. 606, and cited by Laskin J.A. in Minott v O'Shanter Development Co. 1999 CanLII 3686 (ON CA), 42 O.R. (3d) 321.

I find, therefore, that the decision in Smith v. Co-operators, while directly relating to the Bill 164 regime, is relevant to the question of termination of accident benefits under all the different statutory regimes and, indeed, has had the effect of altering the law and practice at the Commission with regard to the termination of accident benefits.

Application for Variation/Revocation of an Order

In the interim decision in this matter, I raised the question of whether Mr. Olszewski should have proceeded by way of an application for variation/revocation pursuant to Rule 61 of the Dispute Resolution Practice Code. As I stated:

In light of Rule 61 of the Practice Code,¹² it is unclear whether, given the existence of a previous ruling on his claim, Mr. Olszewski must pursue his claim by means of an application for variation and revocation, and whether an arbitrator would have jurisdiction to hear this matter, on its merits, as presently framed.

Rule 61 is permissive. It provides that either party may apply to vary or revoke an order if certain pre-conditions are met. Rule 61.2 makes it clear that such applications are to be made only when "all of the issues in dispute have been finally decided", or with the express permission of the Director.

The situations which can trigger a variation/revocation application are given as:

(a) there has been a material change in the circumstances of the insured;

(b) evidence not available on the arbitration or appeal has become available; or

(c) there is an error in the order.¹³

Clearly, Variation/Revocation has limited application. An "error in the order" would appear to address problems such as typographical errors, numerical errors or perhaps an inconsistency between the form of the order and the result shown in the body of the decision. It would not likely be available for an error in law, or an error in the arbitrator's reasoning process.

It is easier perhaps to define what Variation/Revocation is not. In Lukachko, the Director's Delegate held that it is not an appeal.

In addition, I am not convinced that it would likely have affected the outcome of the arbitration. More fundamentally, I think that Mr. Lukachko has misconstrued the purpose of s. 284. He has used a variation and revocation proceeding to re-argue the appeal. I do not think that is its purpose.¹⁴

Likewise, it does not act as an endless postscript to a completed hearing.

In this case, Ms. Lanctot walks a fine line between appeal and variation/ revocation. She challenges various aspects of the Arbitrator's decision, making arguments that could have been pursued in her original appeal, and then points to new evidence that she claims supports her position.¹⁵

It is not a carte blanche to re-litigate. Indeed, "material change" perhaps the widest of the pre-conditions to Variation/Revocation itself has a strictly limited meaning.

In my view, the words "material change" in s.284(3) refer generally to the particular circumstances of an insured person, for example a change in his or her ability to perform the essential tasks of his or her occupation or employment. This aspect is highlighted where an order already exists for payment of benefits to an insured person, and an insurer must continue to pay under s.287 of the Act....The court decision also is not a change in the respondent's circumstances.¹⁶

In this case, the barriers to the revocation process are many. The strongest argument for re-opening Mr. Olszewski's claim, the change of law arising from the Smith decision, does not fall within the named criteria for variation/revocation. All substantive issues in the arbitration have not been decided by an arbitrator. There is no specific new information for an arbitrator to consider that was not available at the time of the original hearing.

Although the Variation/Revocation process may have been available to Mr. Olszewski, with leave of the Director of Arbitrations, it would appear to be a poor fit for his claim. He is not asking to vary the central finding that rolling limitations do not apply. He accepts that finding. He wants access to a hearing on the substantive issues based on a change in the law, a clearly excluded criterion for Variation/Revocation. Consequently, it is hard to fault him for not having taken that route.

As noted earlier in this decision, Gonthier J.'s comments in Smith emphasizing the consumer protection side of the accident benefits schedule would seem to imply that the process should be accessible and easy for applicants. Indeed, this approach is echoed in the General Rules for Dispute Resolution contained in the Practice Code.¹⁷

It would be a retrograde step if the exact manner in which a dispute was brought before the Commission determined its outcome. Such an approach would be more reminiscent of pleading in the days before the Judicature Act than in a process that is "most just, quickest and least expensive."¹⁸ Such would be the effect of restricting Mr. Olszewski to the Variation/Revocation process.

Although Mr. Olszewski has a right to proceed by Variation/Revocation should he so desire, there are sound reasons for his decision to proceed as he has by way of new application. Access to Variation/Revocation is permissive and not mandatory. Consequentially, he is not barred from arbitration by reason of his decision not to proceed by way of Variation/Revocation.

The Application of Res Judicata and Issue Estoppel

While I have found that the Smith decision has substantially changed the law concerning notice, there are other compelling reasons why neither res judicata or issue estoppel should be applied in this case.

To recapitulate, the doctrine of res judicata has been defined by Sopinka and Lederman¹⁹ as follows:

The modern rule of estoppel by res judicata is grounded upon two broad principles of public policy: first, that the state has an interest that there should be an end to litigation (interest republicae ut sit finis litium) and, secondly, that no individual should be sued more than once for the same cause (nemo debet bis vexari pro una et eadem causa) or punished more than once for the same offence (nemo debet bis puniri pro uno et codera delicto).

In the eyes of these same authors:

Although the principle of res judicata is sometimes referred to as a rule of substantive law, the better view is that it is a rule of evidence. Essentially, the party against whom the suit or issue was decided is estopped from proffering evidence to contradict that result.

Closely allied to res judicata is issue estoppel, which applies only to parties and their privies.

The classic Canadian definition of issue estoppel was made by Middleton J.A., in McIntosh v. Parent 1924 CanLII 401 (ON SCAD), [1924] 4 D.L.R. 420 at p. 422:

When a question is litigated, the judgment of the Court is a final determination as between the parties and their privies. Any right, question, or fact distinctly put in issue and directly determined by a Court of competent jurisdiction as a ground of recovery, or as an answer to a claim set up, cannot be re-tried in a subsequent suit between the same parties or their privies, though for a different cause of action. The right, question, or fact, once determined, must, as between them, be taken to be conclusively established so long as the judgment remains.²⁰

Although many of the earlier cases accepted that issues not only "upon which the court was actually required by the parties to form an opinion and pronounce a judgement, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence might have brought forward at the time²¹" are subject to res judicata or issue estoppel, the current position seems to echo that of Middleton J.A. in the passage cited above.²²

Even if the prerequisites for res judicata or issue estoppel are met, there is some discretion about whether or not to strictly apply the rules. As Binnie J. noted in Danyluk v. Ainsworth Technologies²³:

I agree that in general issue estoppel is available to preclude an unsuccessful party from relitigating in the courts what has already been unsuccessfully litigated before an administrative tribunal, but in my view this was not a proper case for its application. A judicial doctrine developed to serve the ends of justice should not be applied mechanically to work an injustice.

Binnie J. in Danyluk emphasised the balancing that must take place:

As a final and most important factor, the Court should stand back and, taking into account the entirety of the circumstances, consider whether application of issue estoppel in the particular case would work an injustice. Rosenberg J.A. concluded that the appellant had received neither notice of the respondent's allegation nor an opportunity to respond. He was thus confronted with the problem identified by Jackson J.A., dissenting, in Iron v. Saskatchewan (Minister of the Environment & Public Safety), 1993 CanLII 6744 (SK CA), [1993] 6 W.W.R. 1 (Sask. C.A.) at p. 21:

The doctrine of res judicata, being a means of doing justice between the parties in the context of the adversarial system, carries within its tenets the seeds of injustice, particularly in relation to issues of allowing parties to be heard.

Whatever the appellant's various procedural mistakes in this case, the stubborn fact remains that her claim to commissions worth $300,000 has simply never been properly considered and adjudicated.

The consideration process then for an adjudicator faced with a res judicata (or issue estoppel) argument is as follows. The adjudicator must decide if the elements of the plea have been met.

The three requirements for a plea of issue estoppel are: (1) the same question has been decided; (2) the decision giving rise to the estoppel was final; and (3) the parties or their privies are the same as the parties to the first decision.²⁴

Then, in accordance with the reasoning in Danyluk (supra), the adjudicator must consider if there are cogent reasons for not applying the rule.

In this case there is no question that a hearing was held, and a final decision rendered involving the same parties, and arising from the same factual circumstances. What is clearly in issue is whether "the same question has been decided" in the earlier hearing and appeal.

Mr. Olszewski has also taken the position that even if the elements of res judicata are made out, there are cogent reasons for not applying it to his case.

Identity of Issues.

The decision of Arbitrator Miller focussed on the question of whether the Olszewskis were entitled to rely upon a "rolling limitation period" as identified in the arbitration decision Kirkham and State Farm²⁵ She found that they would be so entitled but for the appeal decision in that matter, which had rejected the concept of a "rolling time limit."

There is no question that Arbitrator Miller was right in her evaluation of "rolling time limits." Indeed, she was upheld on this issue²⁶ by Director's Delegate Draper (as he then was). Having carefully reviewed the decisions of both Arbitrator Miller and Director's Delegate Draper, I can discern no distinct findings as to the sufficiency of termination, nor any indication that termination was indeed directly addressed as an issue by the parties.

In the case of the original preliminary issue hearing before Arbitrator Miller, a transcript of the proceedings was available, and was filed as part of the evidence in this hearing. In addition, Arbitrator Miller is clear in her decision that the preliminary issue turned on the decision in Kirkham, and not on the sufficiency of any notice.

Indeed, Arbitrator Miller, under the heading of "Findings," stated:

I find that Mr. and Mrs. Olszewski have presented cogent reasons as to why a "rolling limitation period" should apply. Nevertheless, I agree with Citadel's submission that I am bound by the decision of the Director's Delegate in Kirkham. In Poirier and Royal Insurance Company of Canada²⁷ the Arbitrator rejected the finding in Vo that an arbitrator is not necessarily bound by the decision of a Director's Delegate. I agree with his conclusion that: "... to fulfill the legislative intention to create an effective internal appeal system under the Insurance Act, Director's decisions must be and are binding on arbitrators."

Those two findings constitute the underpinnings of Arbitrator Miller's conclusion that the Olszewskis were barred from proceeding to arbitration. Although the issue of notice was touched on in evidence, Arbitrator Miller clearly did not feel the necessity of making a finding as to the sufficiency of such notice.

The appeal decision, however, is not as straightforward. As noted in the interim decision, there was a reference by the Director's Delegate at page 5 of his decision of the issue of notice.

Finally it was suggested that Kirkham is distinguishable on the basis that the Insurer provided more detailed reasons for the termination than The Citadel gave the Olszewskis. I agree with counsel for The Citadel that it is unfair to raise this issue for the first time in oral argument at the appeal hearing. However, I am also satisfied that Citadel provided adequate notice.

I find it hard to accept that the last "throw-away line" of this quotation constitutes a "right, question, or fact distinctly put in issue and directly determined²⁸" by the adjudicator. Indeed, a consideration of the appeal decision as a whole reinforces this impression.

In framing the question under consideration at the appeal, the Director's Delegate stated categorically the nature of the appeal:

They claim that the arbitrator erred in rejecting their "rolling time limit" argument and concluding that their claims for weekly income replacement benefits are time barred.

As the Director's Delegate noted:

By the time of the arbitration hearing in September 1997, I had issued my appeal decision in Kirkham and State Farm Mutual Automobile Insurance Company, (OIC P96-00069, January 27, 1997), rejecting the "rolling time limit" approach. I held that earlier case law did not apply because the 1990 legislation brought in a different type of limitation period. Under the new provisions, a claim for weekly benefits is treated as an ongoing claim and once the insurer refuses to pay or to continue paying, the insured person has two years to apply for mediation of that claim.

Quite rightly, the Director's Delegate rejected Mr. Olszewski's claim that "rolling time limits" applied to his case. The basis of his decision was clearly identified in the decision:

I agree with The Citadel that Kirkham is binding and determines the outcome of this case. Mr. and Mrs. Olszewski claimed ongoing weekly income benefits. The Citadel refused to pay benefits beyond November 26, 1993, starting the clock running. This meant they had to apply for mediation by November 27, 1995 at the latest, which they failed to do. Consequently, they are not entitled to proceed to arbitration on their claims for weekly income benefits.

Section 20 of the Statutory Powers Procedure Act ("SPPA") provides:

A tribunal shall compile a record of any proceeding in which a hearing has been held which shall include:

(a) any application, complaint, reference or other document, if any, by which the proceeding was commenced;

(b) the notice of any hearing;

(c) any interlocutory orders made by the tribunal;

(d) all documentary evidence filed with the tribunal, subject to any limitation expressly imposed by any other Act on the extent to or the purposes for which any such documents may be used in evidence in any proceeding;

(e) the transcript, if any, of the oral evidence given at the hearing; and

(f) the decision of the tribunal and the reasons therefor, where reasons have been given.

There was no transcript prepared of the appeal proceedings. Both sides offered affidavits in support of their version of what may have taken place at the appeal hearing. These affidavits were neither necessary nor appropriate, and I have not considered them in making my decision.

The decision format used by the Director's Delegate clearly states the question remitted to appeals for consideration. Given that there are extensive reasons given for the appeal decision in this case, the record of the hearing speaks for itself.

The record of the hearing for our purposes is essentially the decision and its supporting reasons issued by the Director's Delegate.²⁹ Any identification of a "right, question, or fact distinctly put in issue and directly determined"³⁰ must be made in the context of those reasons.³¹ What is also important is that the record, as defined by the SPPA, does not include the evidence of others as to what transpired at the appeal hearing.³² While for appeal purposes resort may be had to extraneous evidence such as affidavits to demonstrate some fundamental failure on the part of a tribunal, this is not an appeal. There is no precedent for such evidence in this context to explain or expand upon complete and full reasons for a decision where such have been issued.

The best evidence of what was in the mind of an adjudicator is his or her own expression in a decision. To go beyond that decision, except in the context of an appeal, is to undermine the autonomy of the decision-maker, and to place him or her into a position where their testimony may be required to clarify the situation.

Nor is every comment or opinion expressed in a written decision subject to issue estoppel. As part of the background or the context of a decision, opinions are often expressed that are unnecessary to the decision of the case. These constitute obiter dictum³³ While the parties to the appeal may have made assumptions about notice, and even communicated those assumptions in the course of the appeal, the question of clear and unequivocal notice did not need to be decided to deal with "rolling time limits."

Indeed, the decision also makes it clear that the Director's Delegate declined to allow Mr. Olszewski to raise the issue of sufficiency of notice at the appeal level, stating: "I agree with counsel for The Citadel that it is unfair to raise this issue for the first time in oral argument at the appeal hearing."

I find, therefore, that the inclusion of the phrase "However, I am also satisfied that Citadel provided adequate notice" in the appeal decision is at best obiter and does not constitute a "right, question, or fact distinctly put in issue and directly determined" necessary to invoke either res judicata or issue estoppel.

Hearing on the merits:

As noted previously, in the earlier arbitration Arbitrator Miller heard arguments on a motion by the Insurer as to whether Mr. and Mrs. Olszewski were precluded from proceeding to arbitration pursuant to section 281(5) of the Insurance Act. Following a brief hearing on that issue she concluded that they were, indeed, so precluded.

As counsel for Mr. Olszewski noted in this matter, Mr. Olszewski has never had an opportunity to present evidence as to the merits of his claim. Rather, at the motion of the Insurer he was barred from proceeding on what might be considered a technical argument based on limitations.

Borins J. in AGF Canadian Equity Fund et al. v. Transamerica Commercial Finance Corp. Canada et al., 1993 CanLII 8682 (ON CTGD), 14 O.R. (3d) 161, particularized the need for a decision on the merits as a pre-condition to estoppel per rem judicatum or res judicata:

What does the judgment of the motions court judge dismissing the first action stand for, taking into account the statement of claim in that case? In my view, it stands for the proposition that the statement of claim as pleaded disclosed no reasonable cause of action because a material averment had been omitted. The judgment says nothing about the ultimate validity of the plaintiffs' claims should they come to trial upon an amended or fresh statement of claim as this issue was never argued before the motions court judge. There is nothing in the judgment which decided the defendants liability, one way or another as this issue was not before the motions court judge. No issues of fact were litigated and, therefore, the merits of the plaintiffs claims were not considered. In other words, to adopt the reasoning in Pople v. Evans, because the merits of the case have not been dealt with the dismissal of an action because a material averment has been omitted from the statement of claim does not constitute a bar to another action arising out of the same circumstances and based on a statement of claim which contains the averments which had been omitted from the first action. Viewed in a functional sense, as the effect of the original motion was not to consider the merits of the plaintiffs' claims, it follows that the effect of the judgment was not an adjudication of the merits of those claims. Stated differently, the defendants' position is based on the form of the judgment when it is the substance of the matter actually decided which should control.

Likewise, in Pople v. Evans³⁴, Ungoed-Thomas J. observed:

That Case (New Brunswick Railway Co. v. British & French Trust Corpn. Ltd.)³⁵and the Kok Hoong case showed the concern of the courts to limit the operation of res judicata to issues which can be fairly regarded or treated as having been disposed of by the order relied on on their merits, for example, by trial, admission or compromise. It seems to me that the non-technical and substantial nature of res judicata "founded on the considerations of justice and good sense" has no place for mere dismissal for want of prosecution, and that Byrne v. Frere and Magnus v. National Bank of Scotland, Ltd. rightly so establish.

A party in raising a preliminary issue such as time-limits makes a tactical decision that can result in a summary dismissal of a claim without the necessity to adjudicate the substantive issues underlying the claim. This can result in real cost and time savings for a successful party. In most cases there is little "down-side" to such a decision. Accident benefit cases, however, are a little different. There is, as in Smith or the present case, some potential for a revival, even many years after the nominal limitation period has expired.

Every party is assumed to have evaluated the pros and cons of proceeding on a certain course in defending or prosecuting a case. By proceeding to strike out a claim by way of a preliminary motion, a party weighs the benefit of a swift decision against the potential of having the matter re-litigated in the future. Having made the decision to proceed by way of preliminary issue in this matter, the Insurer must be seen to have accepted the risk of re-litigation, however remote.

Prejudice

The Insurer, in particular, raised the issue of prejudice, specifically from the difficulty it may have in tracing certain witnesses and evidence after the considerable passage of time. The potential prejudice to one party or another, should this matter proceed, is a relevant consideration.

As the Court of Appeal noted in Mader v. Hunter³⁶:

The court is always reluctant to dismiss a potentially meritorious claim on grounds that do not address its merits. Unless the defendant can demonstrate prejudice in the sense that to grant the plaintiff the indulgence he or she seeks will prejudice the defendant's ability to defend the claim, the indulgence will usually be granted on appropriate terms.

While re-litigation may represent some prejudice to the Insurer, it is a prejudice that would have been to some extent anticipated and balanced in the decision to proceed by way of preliminary issue. Although witnesses may be unavailable, there is no evidence that the underlying documentation that forms the backbone of most arbitrations may not be obtained. As noted as well in my interim decision, Mr. Olszewski has the primary burden of demonstrating his entitlement to benefits. In the absence of credible supporting evidence, his application will fail. Although one may infer some prejudice from the passage of time, any prejudice arising from the passage of time since the original hearing will necessarily affect Mr. Olszewski at least as much as the Insurer in this matter.

Accident Benefits and the Application of Res Judicata

Accident benefits are a peculiar sort of issue to deal with in an adjudicative setting. They are potentially available to an individual over a lifetime and can address a variety of problems, including conditions that change subsequent to the accident. While the general public interest in ending litigation must apply to arbitrations as well as court hearings, so do other important policy concerns such as consumer protection, the compensation of accident victims, and allowing a dispute to be heard on its merits.

Courts, Arbitrators and Appeals Delegates have all commented on some of the practical challenges of applying Res Judicata to the accident benefits arbitration process. In the appeal decision of Zurich and Stelzer³⁷, Director's Delegate Makepeace highlighted the comments of the Court of Appeal in Machin v. Tomlinson.

Moreover, injecting issue estoppel into the arbitration proceedings concerning SABs would greatly raise the stakes, would lead to third parties seeking to make representations to the arbitrator and would needlessly complicate and prolong the proceedings. To make such a finding may also result in few, or fewer, applicants proceeding to arbitration hearings. In the result, the purpose of the arbitration option contemplated by the legislature would be undermined. For these reasons, I find that the statutory scheme of the Act does not support a finding that issue estoppel applies to facts such as are before this court.³⁸

I agree that res judicata is an uncomfortable fit with the statutory accident benefits scheme, and that, while it may apply in certain situations, it is not appropriate to apply to this arbitration. Mr. Olszewski is entitled to have the merits of his claim for accident benefits put before an arbitrator.

Abuse of Process

The route of a new arbitration application is not without its own challenges. If the new arbitration is but a collateral attack on the previous arbitration decision, then the new application could be barred as an abuse of process.

Putting aside the issue of res judicata, there are several other broad policy concerns that may be discerned from court decisions. As already noted, there is a general preference to have a matter decided on its merits rather than a technicality.

On the other hand, there is the obligation of a court or tribunal to ensure that its process is not abused. This is part of the inherent jurisdiction of the courts. Arbitrators, as tribunals functioning under the SPPA, receive this jurisdiction from section 23 of the Act, which provides:

A tribunal may make such orders or give such directions in proceedings before it as it considers proper to prevent abuse of its processes.

In Budd v. Paterson[^39], Nordheimer J. examined the application of the concept of abuse of process in a court proceeding instituted by a party who had been unsuccessful in an arbitration arising out of the same circumstances. Notwithstanding a finding that res judicata did not apply to the matter before him, he went on to hold that re-litigation would amount to an abuse of process and so was barred.

That conclusion leads me to a consideration of whether the concept of abuse of process can be applied here. Abuse of process, as Mr. Justice Finlayson said in the above quotation (Canam Industries v. Coles⁴⁰) is a principle that is used to "bar proceedings that are inconsistent with the objectives of public policy". Here we have a situation where an issue that is central to the plaintiff's claim has been decided adversely to the plaintiffs. It was decided adversely to the plaintiffs after a full hearing where both Mr. Budd and Mrs. Budd were able to give their evidence and have their side of the story evaluated. Their side of the story was found to be wanting.

It is important to note that in Mr. Budd's case, he proceeded to arbitration on his substantive issues, which were clearly decided against him, both at the arbitration and appeals level.⁴¹

In Toronto v. CUPE, Doherty J.A., speaking for the Court of Appeal, noted:⁴²

A review of the Canadian case law reveals that the courts have prohibited relitigation of decided issues in cases that are not captured by the res judicata doctrine, and do not involve plaintiffs who have commenced subsequent proceedings for some improper motive. In these cases, defendants were precluded from relitigating issues decided against them in a prior proceeding.

One consideration in abuse of process is the intention and purpose of the parties in bringing the matter before the courts. In Atland Containers Ltd. v. Macs Corp. Ltd. et al.[^43], Parker J. examined the nature of abuse of process. Relying on Fleming⁴⁴, he concluded that it occurs "where the process of the Court is used for an improper purpose and where there is a definite act or threat in furtherance of such a purpose."

While the parties may disagree about the application of res judicata to Mr. Olszewski's claim, I have heard neither evidence nor submissions calling into question his bona fides, nor suggesting an improper purpose or motive. Nor is there any suggestion that his application would somehow bring the arbitration system into disrepute. Consequently, I find that Mr. Olszewski's claim is not barred as an abuse of process.

Disposition

Having found that the issue of the sufficiency of the Insurer's refusal was never directly in issue at either the hearing before Arbitrator Miller or at the Appeal hearing and that no direct finding on that point was made in either hearing, I find that neither Res Judicata nor Issue Estoppel act to bar the hearing of Mr. Olszewski's substantive claim.

Even if the necessary pre-conditions to the application of Res Judicata were made out⁴⁵, I find that there are sound policy reasons to permit the re-hearing of the matter as enunciated in Danyluk (supra).

These reasons include:

1. The "change in law" exception. The Supreme Court decision in Smith (supra) has forced a re-examination of the law and the Commission's approach to the evaluation of termination. Parts of the Smith approach are clearly applicable to termination under the OMPP Schedule.

2. The judicial preference to permit a matter to be heard on its merits wherever possible, rather than being dismissed on a technicality.

3. The need to give effect to the "consumer protection mandate" identified in Smith and to avoid foreclosing access to benefits that can relate to an ongoing disability by reason of a technical deficiency in his claim.

4. An evaluation of the prejudice suffered by both sides due to a late hearing of the substantive claim does not come down clearly against Mr. Olszewski's application. Both will suffer from the absence of potential witnesses and documentation. While specific witnesses may not be available to the Insurer due to organizational change, the Applicant still bears the evidentiary onus of proving his case.

While both parties provided materials and made submissions relating to the actual sufficiency of notice given by the Insurer, I make no specific finding as to that issue. This hearing is the result of a motion brought by the Insurer, alleging that Mr. Olszewski was barred from arbitration by the previous arbitral decisions. While the issue of notice is closely related, it does not form part of the Insurer's motion, and it is not my role to unilaterally modify a party's motion.

Noting that I have found a significant difference in the approach taken by the Commission to termination since the Smith decision, should the parties not be able to agree on the disposition of that related issue, an expedited hearing may be arranged by contacting the case administrator within the next 30 days, failing which a resumption of the pre-hearing will take place to set the time and date for the hearing of the substantive issues in this matter.

EXPENSES:

Having found in favour of Mr. Olszewski on all issues raised in this preliminary issue hearing, I exercise my discretion to award him his expenses incurred in this preliminary issue hearing. If the parties are unable to agree on the amount of those expenses, they may contact the case administrator to set a date to speak to that issue.

December 16, 2004

John Wilson

Arbitrator

Date

Neutral Citation: 2004 ONFSCDRS 185

FSCO A03-000765

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

JERZY OLSZEWSKI

Applicant

and

CITADEL GENERAL ASSURANCE COMPANY

Insurer

ARBITRATION ORDER

Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. Neither Res Judicata nor Issue Estoppel act to bar the hearing of Mr. Olszewski's substantive claims.

2. I exercise my discretion to award Mr. Olszewski his expenses incurred in this preliminary issue hearing. If the parties are unable to agree on the amount of those expenses, they may contact the case administrator to set a date to speak to that issue.

December 16, 2004

John Wilson

Arbitrator

Date

Footnotes

1. 1(Dated September 24, 2003)
2. 2The Statutory Accident Benefits Schedule —Accidents Before January 1, 1994, Regulation 672 of R.R.O. 1990, as amended by Ontario Regulations 660/93 and 779/93. [footnote added]
3. 3However, Sub-rule 61.2 specifically forbids the variation or revocation of preliminary orders until all the issues in dispute in the proceeding have been finally decided, unless the Director orders otherwise.
4. 4Smith v. Co-operators General Insurance Co., 2002 SCC 30, 2002 S.C.C. 30
5. 5Regulation 672, R.R.O. 1990, as amended.
6. 6Turner v. State Farm 2004 CanLII 13402 (ON SCDC), [2004] O.J. No. 731 - judicial review
7. 7Turner and State Farm Mutual Automobile Insurance Company (FSCO P00-00046, February 1, 2002)
8. 8Turner v. State Farm (supra)
9. 9Nahsari and Belair Insurance Company Inc., (FSCO P02-00002, September 9, 2002) appeal
10. 10Horvath and Allstate Insurance Company of Canada, (FSCO A02-000482, June 9, 2003), C.R. and Lombard General Insurance Company of Canada, (FSCO A02-001057, December 22, 2003), and Mcintosh and Allstate Insurance Company of Canada, (FSCO A02-001277, April 23, 2004), under appeal.
11. 11RBC General Insurance and Antony (FSCO P03-00023, July 22, 2004) appeal
12. 12See Footnote 4 of this decision.
13. 13See also section 284 of the Insurance Act
14. 14Lukachko and Allianz Insurance Company of Canada (FSCO P02-00034, April 9, 2003) Variation/Revocation Order
15. 15Zurich Insurance Company and Lanctot (FSCO P99-00012, October 30, 2003) appeal
16. 16Sittler and Canadian General Insurance Company, (OIC P-000951 and V-000951), and Sittler and Pilot Insurance Company, (OIC P-004495 and V-004495, August 11, 1995)
17. 17Rule 1.1 provides for the "most just, quickest and least expensive resolution of the dispute." Rule 1.3 provides that a defect in form or other technical breach will not make a proceeding invalid.
18. 18As the Law Reform Commission of British Columbia noted: "The courts of common law did not administer "equity", a separate system of justice that grew up over the centuries to temper the common law and which eventually became equally inflexible. Equity was administered by the Lord Chancellor. A litigant had to decide whether the claim was one at law or in equity. If it was at law, care had to be taken to bring the action in the common law court that had jurisdiction to hear the matter." Report on Wrongful Interference with Goods, LRC 127 November 1992.
19. 19The Law of Evidence in Canada, Sopinka, Lederman and Bryant, Butterworths, Toronto 1999, p. 1068
20. 20Cited with approval by the Supreme Court of Canada in Danyluk v. Ainsworth Technologies (2001), 2001 SCC 44, 201 D.L.R. (4th) 193
21. 21Henderson v. Henderson [(1843), 67 E.R. 313]
22. 22See Danyluk (supra)
23. 23The approach in Danyluk (supra) and Angle v. Canada (Minister of National Revenue), 1974 CanLII 168 (SCC), [1975] 2 S.C.R. 248 has prevailed over earlier cases such as Maynard v. Maynard 1950 CanLII 3 (SCC), [1951] S.C.R. 346, which applied issue estoppel to points which were not necessarily before the court but were properly the subject of the litigation.
24. 24Allstate Insurance Company of Canada and Progressive Casualty Insurance Company of Canada and Saliba (FSCO P00-00052, July 19, 2002)
25. 25Kirkham and State Farm Mutual Automobile Insurance Company (OIC A96-000141, August 15, 1996)
26. 26(OIC P96-00069, January 27, 1997)
27. 27(September 30, 1997), OIC A-011605 [footnote in original]
28. 28Middleton J.A., in McIntosh v. Parent (supra)
29. 29See R. v. Nat Bell Liquors [1922] All E.R. Rep. 335, a decision of the Privy Council on appeal from the Supreme Court of Canada. Lord Sumner, speaking for the court, identified the primacy of the record, and rejected extrinsic evidence: "Furthermore, a conviction, regular on its face, is conclusive of all the facts stated in it, not excepting those necessary to give the justices jurisdiction, and it is from the facts stated in the conviction that the facts of the case are to be collected."
30. 30McIntosh v. Parent (supra)
31. 31Although both parties submitted affidavits by counsel with knowledge of the appeal, I have placed no reliance on their contents in deciding what matters were before the appeal hearing. Without even considering the reliability of the memory of counsel after the passage of time, I do not accept that either party has made a case for the consideration of extrinsic evidence. Consequently the appeal decision must speak for itself.
32. 32Although such would be admissible in support of a contention that a tribunal lost its jurisdiction by reason of something that happened in the course of a hearing, or a complete failure of the hearing process. See Re Jackson et al. and Ontario Labour Relations Board 1954 CanLII 88 (ON HCJ), [1955] O.R. 83-103, Re Securicor Investigations & Security Ltd. and Ontario Labour Relations Board et al. 1985 CanLII 1978 (ON HCJ), 50 O.R. (2d) 570.
33. 33Black's (Black'sLaw Dictionary 7th edition) defines obiter dictum as: [Latin "something said in passing"] A judicial comment made during the course of delivering a judicial opinion, but one that is unnecessary to the decision in the case and therefore not precedential (though it may be considered persuasive).
34. 34Pople v. Evans [1969] 2 Ch. 255
35. 35New Brunswick Railway Co. v. British & French Trust Corpn. [1939] A.C. 1
36. 362004 CanLII 17834 (ON CA), [2004] O.J. No. 748
37. 37Zurich North America Canada and Stelzer (FSCO P02-00035, February 6, 2004) appeal
38. 38Machin v. Tomlinson 2000 CanLII 16945 (ON CA), [2000] O.J. No. 4338, 51 O.R. (3d) 566.
39. 40Canam Enterprises Inc. v. Coles (2000) 2000 CanLII 8514 (ON CA), 51 O.R. (3d) 481
40. 41At the Court of Appeal level, res judicata was held to be non-applicable due to a distinction between the issues at the accident benefit hearing.
41. 42City of Toronto v. Canadian Union of Public Employees, Local 79 et al., 2001 CanLII 24114 (ON CA), 55 O.R. (3d) 541, confirmed Supreme Court 2003 SCC 63, [2003] S.C.J. No. 64
42. 44Fleming on Torts 4th ed. (1971)
43. 45See Angle v. MNR 1974 CanLII 168 (SCC), [1975] 2 S.C.R. 248
44. 39Budd v. Paterson 2002 CanLII 49421 (ON SC), 58 O.R. (3d) 611 - Reversed on other grounds at the Court of Appeal (2002), 2002 CanLII 37032 (ON CA), 62 O.R. (3d) 715 (Ont.C.A.)
45. 43(1975) 1974 CanLII 864 (ON HCJ), 7 O.R. (2d) 107