Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2005 ONFSCDRS 103

FSCO A03-001307

BETWEEN:

CHATTAR KAINTH

Applicant

and

GUARANTEE COMPANY OF NORTH AMERICA

Insurer

DECISION ON PRELIMINARY ISSUE

Before:

Denise Ashby

Preliminary Issue Heard:

April 12, 2005, at the Offices of the Financial Services Commission of Ontario in Toronto.

Expense Hearing:

Proceeded by way of written submissions completed on April 28, 2005.

Appearances:

David Carranza for Mr. Kainth

Rose Bilash for Guarantee Company of North America

Issues:

The Applicant, Chattar Kainth, was involved in a motor vehicle accident on March 15, 2003. He applied for and was denied statutory accident benefits from Guarantee Company of North America (Guarantee), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and Mr. Kainth applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The issues at the preliminary issue hearing were:

Was there a settlement of the issues reached between the parties on or about May 13, 2004?
Is Mr. Kainth entitled to his expenses incurred in respect of:

(a) the arbitration proceedings; and

(b) the preliminary issue hearing on April 12, 2005?

Is Guarantee entitled to its expenses incurred in respect of:

(a) the arbitration proceedings; and

(b) the preliminary issue hearing on April 12, 2005?

Is Mr. Humberto Geovo, SABS Representative, liable to pay Guarantee's expenses personally pursuant to s. 282(11.2) of the Insurance Act?

Result:

A settlement was reached between the parties on May 13, 2004, which was confirmed in writing on May 14, 2004.
Mr. Kainth:

(a) is not entitled to his expenses in respect of the arbitration hearing; and

(b) is entitled to his expenses in respect of the preliminary issue hearing fixed at $750.00.

Guarantee:

(a) is not entitled to its expenses in respect of the arbitration hearing; and

(b) is not entitled to its expenses in respect of the preliminary issue hearing.

Mr. Humberto Geovo is not personally liable to pay Guarantee's expenses.

SUBMISSIONS AND EVIDENCE:

The primary issue before me is: Did the parties resolve the issues for arbitration during a discussion between the representatives on May 13, 2004? I find that they did resolve the issues for arbitration based on the reasons that follow.

Ms Bilash and Mr. Carranza, the parties' representatives, did not give evidence with respect to their discussion held on May 13, 2004. However, both made submissions. I have relied on those portions of their submissions upon which the representatives agreed. I have also relied on the documentary evidence relating to the discussion on May 13, 2004, the pre-hearing and its resumptions.

The parties agree that during the May 13th settlement discussion:

a proposal for resolution of the substantive issues to be arbitrated was reached between Mr. Carranza and Ms Bilash, subject to Mr. Kainth's acceptance;
claims for a special award, interest and expenses were not discussed;
Mr. Carranza was aware that Ms Bilash would be leaving early that afternoon and would be unavailable thereafter. If the agreement was not confirmed prior to

Ms Bilash leaving her office, she and her witnesses intended to go directly to the Commission for the arbitration hearing on May 17, 2004.

I find the following correspondence relevant to the issue:

On February 12, 2004, the pre-hearing arbitrator sent a pre-hearing letter to the parties identifying the issues to be arbitrated as:

♦ a preliminary issue to determine whether section 33 of the Schedule barred Mr. Kainth from claiming an income replacement benefit;

♦ duration and quantum of the income replacement benefit;

♦ medical treatment provided by Physiotherapy Fix, Accident Injury Management Clinic (AIM), less collateral benefits available to Mr. Kainth;

♦ housekeeping and home maintenance benefits;

♦ Mr. Kainth's liability to pay to Guarantee its assessment fee in respect of the arbitration because he commenced an arbitration that was frivolous and vexatious or an abuse of power;

♦ Guarantee's liability to pay a special award;

♦ both parties claimed their expenses; and

♦ Mr. Kainth's entitlement to interest for the overdue payment of benefits.

On May 4, 2004, the pre-hearing was resumed and the pre-hearing arbitrator sent a resumption of pre-hearing letter confirming that the parties had resolved the following issues:

♦ the preliminary issue;

♦ the duration and quantum of the income replacement benefit;

♦ medical benefits for treatment provided by Physiotherapy Fix and AIM;

♦ Guarantee's claim that Mr. Kainth pay its assessment fee in respect of the arbitration.

Further:

♦ the parties agreed to add the issue of Guarantee's claim that Mr. Geovo, a SABS Representative with Mr. Carranza's office, personally pay its expenses.

On May 14, 2004:

♦ Mr. Geovo wrote to Ms Bilash confirming the agreement reached between the parties and setting out the following terms:

Guarantee would pay, if not previously paid, an in-home and a job site assessment;
medical treatment provided by Physiotherapy Fix and the sum of $150.00 towards an invoice payable to Credit Valley Hospital;
Mr. Kainth would withdraw his claim for housekeeping and home maintenance benefits; and
each side was to bear its own costs.²

♦ Mr. Geovo also wrote to the Commission, copying Ms Bilash, advising the Commission that: "all the issues in dispute for the Arbitration in this matter have been resolved" and requesting that the hearing not proceed and the Commission close its file.³

On May 19, 2004:

♦ Ms Bilash wrote to the Commission requesting that a date for an expense hearing be set. She submitted that Mr. Kainth's representative had failed to comply with the procedure set out in Rule 70 respecting withdrawal as Guarantee: "did not expressly consent to the withdrawal of the issue of expenses."⁴

♦ Ms Bilash also wrote to Mr. Carranza confirming that neither the issue of expenses or special award had been dealt with in the discussions of May 13, 2004 and her client was requesting a hearing to deal with the outstanding issues or to determine whether the outstanding issues were properly withdrawn.⁵

On May 25, 2004:

♦ Mr. Carranza wrote to Ms Bilash advising that his client took the position that all of the issues had been resolved during the May 13, 2004 discussion, including expenses. Also, the issues of his client's claim for interest and a special award had been "tacitly" withdrawn when Mr. Kainth accepted the proposal.⁶

♦ Ms Bilash wrote to treatment providers Physiotherapy Fix⁷ and AIM enclosing cheques for their outstanding accounts. She also forwarded to Mr. Kainth two cheques: one for housekeeping and another for income replacement benefits, both of which were inclusive of interest.⁸

On May 27, 2004, Ms Bilash wrote to Mr. Carranza advising that her client wished to reconvene a one day hearing with respect to expenses. She was seeking Guarantee's agreement to the withdrawal of Mr. Kainth's claim for a special award and interest. She stated: "It was our understanding that you intended to pursue a Special Award on the scheduled day of the hearing (May 17, 2004) and the insurer would pursue it claim for expenses."⁹
On June 4, 2004, Mr. Carranza responded to Ms Bilash reiterating his client's position that all issues in dispute had been resolved on May 13, 2004 and therefore a hearing was unnecessary. However, if Guarantee continued to pursue a claim for expenses, he would seek to proceed with "a full Arbitration Hearing."¹⁰
On August 27, 2004, as a result of Mr. Carranza's insistence on a "full" arbitration hearing, the pre-hearing was resumed again. The pre-hearing arbitrator sent the parties a letter confirming that all of the issues set out in her pre-hearing letter of February 12, 2004 were proceeding to arbitration, with the exception of:

♦ Mr. Kainth's claim for treatment provided by Physio Fix and AIM; and

♦ Guarantee's claim that Mr. Kainth pay Guarantee its assessment in respect of the arbitration.

In addition, Guarantee's claim that Mr. Geovo personally pay its expenses, as set out in her letter dated May 4, 2004,¹¹ would proceed to arbitration.

On March 28, 2005, Mr. Carranza wrote to Ms Bilash "questioning" the need for a three day hearing when the question to be determined was "whether the fact of not having specifically included the issue of Cost during the verbal agreement of May 13, 2004, would contravene the regulations of the Dispute Resolution Practice Code." He asked whether Guarantee intended to "cancel" the agreement reached during those discussions.¹²
On April 6, 2005, Ms Bilash wrote to Mr. Carranza suggesting that Mr. Carranza was unwilling to participate in settlement discussions. She noted that Guarantee was "amenable to settling the substantive issues of income replacement benefits and housekeeping, given the small amounts in dispute."¹³

ANALYSIS:

Preliminary Issue:

Which Rule in the Dispute Resolution Practice Code Applies?

Rules 69 and 70 of the Dispute Resolution Practice Code (Fourth Edition, Updated October 2003) provide procedures for dealing with any or all issues that have been settled or are to be withdrawn, respectively. Guarantee submits that the provisions found in Rule 70 that expenses may be awarded where a party objects to the withdrawal of an Application for Arbitration is the relevant procedure. Mr. Kainth has not disputed its application. However, the parties agree that they engaged in settlement discussions on May 13, 2004.

Rule 69.1 provides that after one year has passed since the date of the accident, parties may settle any or all of the issues in dispute. Rule 69.2 provides as follows:

If a dispute is settled, the Dispute Resolution Group will close its file: • immediately upon receipt of written confirmation from the parties that the entire matter is settled; or

(b) 20 days following notice of the Dispute Resolution Group's intention to close the file on the basis of a reported settlement.

Rule 69.3 provides a procedure for a party to object to the closure of the file by the Dispute Resolution Group.

Rule 70 provides for the withdrawal of all or part of a dispute. It requires an Applicant to seek the permission of an arbitrator to withdraw by either making a request in writing with evidence of service on the other side or by making an oral request at a proceeding.

In support of its submission that Rule 70 applies, Guarantee referred me to four Commission cases.¹⁴ Each of these cases deals with motions by the Applicant to withdraw their application. None of these cases raises a settlement of the issues to be arbitrated as a basis for the withdrawal.

Frequently, arbitrations do not proceed because a party advises the Commission of the settlement of the issues and copies the other party. The Commission accepts such notice as grounds for closing the file. This administrative procedure is consistent with the mandate of the dispute resolution process to facilitate quick and relatively inexpensive proceedings. Were the Commission to require the formality of service as required by the provisions of Rule 70, then agreements between the parties on the eve of hearing could only be dealt with before the hearing arbitrator. This would have a chilling effect on the parties reaching a last minute resolution and would place stress on the administration of the hearing process. I find that Rule 69.2(a) is the procedure which applies to the case before me.

Was There A Settlement?

The correspondence of May 4, 2004 and May 14, 2004 is evidence that the parties engaged in settlement discussions both at the resumption of pre-hearing and between the parties on May 13, 2004. On May 25, 2004, the payments to Physiotherapy Fix and AIM by Ms Bilash on behalf of Guarantee are consistent with the agreement described in the pre-hearing arbitrator’s letter dated May 4, 2004 and Mr. Geovo’s letter dated May 14, 2004.

Ms Bilash requested a date for an expense hearing because Guarantee did not "expressly" withdraw its claim for expenses. This raises an issue of the status of expenses and costs in law. Is express agreement with respect to costs or expenses an essential element of a settlement? I find that it is not.

The status of a claim for expenses, as either a substantive or procedural issue, has recently been considered in both civil and Commission cases. Director David Draper considered the case law relating to the application of the new costs rules in civil trials in relation to the amended expense regulation and held that expense provisions are procedural. He stated:

In my view, these decisions reflect some discomfort with the Court of Appeal's approach, a discomfort I share. With respect, there is something odd about saying that costs are procedural because they are used to control the process, and then, on that basis, applying new cost rules to actions taken at a time when different rules were in effect. Nevertheless, the starting point is clear — changes in the cost provisions are procedural and, absent transition rules to the contrary, apply to any determination of expenses after they come into effect.¹⁵

As awards of expenses are procedural, it was incumbent on Ms Bilash to make explicit her client's intention to pursue a claim for expenses, notwithstanding Mr. Kainth might agree to the settlement proposal. Having failed to make this clear, Ms Bilash's client, Guarantee, could not revive the expense claim after the settlement proposal was accepted. I find there was a settlement of the remaining issues for arbitration on May 13, 2004. Consequently, the hearing scheduled to commence on May 17, 2004 did not proceed.

I find that pursuing the expense issue is not consistent with Ms Bilash's intention to go directly to the Commission for the arbitration hearing on May 17, 2004 if Mr. Kainth's acceptance of the settlement proposal was not received prior to her leaving her office on May 13, 2004. It is not until her letter of May 27, 2004 that Ms Bilash suggested that she and Guarantee believed the issues of expenses and special award were to be argued on May 17, 2004. This observation was not evident in her earlier correspondence with Mr. Carranza and the Commission. The dates set for hearing would have been the appropriate time to deal with expenses had there been an intention to pursue such a claim. It was reasonable for Mr. Carranza and Mr. Geovo to conclude that, upon Mr. Kainth accepting the settlement proposal, there would be no hearing.

Conclusion:

For the foregoing reasons, I find that the parties settled the issues to be arbitrated at the hearing which was to commence on May 17, 2004 in discussions held May 4 and May 13, 2004. Acceptance of the agreement was confirmed in Mr. Kainth's representative's letter of May 14, 2004. As there was a settlement of the issues to be arbitrated, I find that Rule 69.2(a) respecting settlements governs this matter. The confirmation received by the Commission on May 14, 2004 was sufficient to comply with the procedure set out in Rule 69.2(a). As a consequence, the arbitration did not proceed.

DECISION ON EXPENSES

Entitlement:

Arbitration Hearing

Both parties have claimed their expenses for the arbitration hearing. Guarantee has claimed that their expenses should be paid by Mr. Geovo personally. As I find that there was a settlement of the issues in which it was implicitly agreed that each side would bear its own costs, neither party is entitled to its expenses of the arbitration hearing and Mr. Geovo is not personally liable for Guarantee’s expenses.

Preliminary Issue Hearing

Subsection 282(11) of the Insurance Act gives arbitrators the discretion to award expenses to parties at a preliminary issue hearing, according to criteria prescribed by the Regulations. Regulation 664 (12) requires an arbitrator to apply the following criteria:

(a) each party's degree of success in the outcome of the proceeding;

(b) any written offers to settle made in accordance with Rule 76;

(d) the conduct of a party or party’s representative that tended to prolong, obstruct or hinder the proceeding, including a failure to comply with undertakings and orders; and

(e) whether any aspect of the proceeding was improper, vexatious or unnecessary.¹⁶

These criteria are repeated in Rules 75 and 76 of the Dispute Resolution Practice Code (Fourth Edition Updated October 2003).

This matter is an example of how seriously proceedings can go awry as a consequence of the conduct of the parties.

As the successful party, Mr. Kainth is entitled to his expenses in respect of the preliminary issue hearing pursuant to Regulation 664 (12)(a). The quantum of his expenses are determined by the remaining criteria.

Mr. Kainth did not submit a written offer with respect to settlement of the preliminary issue hearing but did offer to settle expenses in respect of the arbitration by each party bearing their own expenses.

I find that the issues were not novel and therefore this criteria is not relevant to my determination of quantum.

I find that both parties acted in a manner that prolonged the proceedings unreasonably.

The careful wording of Guarantee's correspondence seeking an expense hearing was the catalyst for the reopening of the proceedings. The letter states that Guarantee: "did not expressly consent to the withdrawal of the issue of expenses."¹⁷ The parties should have immediately set a date for the preliminary issue hearing. They failed to do so. Instead, Mr. Kainth chose to revive all the issues which were to have been arbitrated.

In Bershteyn and Spiegel and Allstate Insurance Company of Canada,¹⁸ the Director of Arbitrations confirmed the arbitrator’s order that Ms Bershteyn was not entitled to reimbursement for the cost of a disability certificate and Mr. Spiegel was to pay Allstate’s expenses. In confirming the arbitrator’s order, the Director found the arbitrator had "amply" supported that Mr. Spiegel "was on a frolic of his own."¹⁹ Guarantee has submitted that Mr. Carranza was on a frolic of his own with respect to the proceedings which followed the discussion on May 13, 2004. I do not agree.

Mr. Carranza revived his client’s claim after taking the position that Guarantee had resiled from the settlement agreement. There was a resumption of the pre-hearing discussion in August 2004 at which it was agreed by the parties that all but two issues set out in the original pre-hearing letter were to be arbitrated. Mr. Kainth did not pursue his claim for medical benefits because the outstanding accounts with Physio Fix and AIM were paid by Guarantee on May 25, 2004. Guarantee did not pursue its claim that Mr. Kainth pay Guarantee its assessment fee in respect of the arbitration. If Guarantee had articulated its intent to pursue its expenses on May 13, 2004, the arbitration hearing would have proceeded on May 17, 2004.

On March 28, 2005, Mr. Carranza wrote to Ms Bilash "questioning" the need for a three day hearing. He identified the only issue to be determined as: "...whether the fact of not having specifically included the issue of Cost during the verbal agreement of May 13, 2004, would contravene the regulations of the Dispute Resolution Practice Code."²⁰ Mr. Carranza's failure to reach this conclusion earlier resulted in unnecessary and protracted proceedings. I find he failed to carefully consider the most expeditious and cost effective means of determining the question of whether a settlement had been reached. However, this lack of care did not constitute an abuse of process as occurred in the case of Gawronski and Allstate.²¹

Mr. Gawronski had two counsel representing him in claims for benefits pursuant to the Schedule.²² The Director's Delegate upheld the hearing arbitrator's decision to permit Mr. Gawronski to withdraw his application in respect of a medical benefit in order to pursue his claim in a court action but ordered expenses because of his failure to exercise due care in his choice of forum. I find that Mr. Kainth's failure to proceed in the most expeditious and cost effective manner leads me to reduce the quantum of expenses to which he is entitled. I fix his costs at $750.00 inclusive of interest.

July 25, 2005

Denise Ashby Arbitrator

Date