Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2005 ONFSCDRS 117

FSCO A04-001270

BETWEEN:

SUJATHA MAHENDRARAJAH Applicant

and

AMERICAN HOME ASSURANCE COMPANY Insurer

AND

FSCO A04-001268

BETWEEN:

THAVA MAHENDRARAJAH Applicant

and

AMERICAN HOME ASSURANCE COMPANY Insurer

DECISION ON A PRELIMINARY ISSUE

Before: Denise Ashby

Heard: May 30 and June 1, 2005, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances: Richard Gordon for Ms. Sujatha Mahendrarajah and Ms. Thava Mahendrarajah J.A. Michael Wolfe for American Home Assurance Company

Issues:

The Applicants, Sujatha and Thava Mahendrarajah (the Mahendrarajahs) were involved in a motor vehicle accident on December 15, 2002. They applied for, and were denied statutory accident benefits from American Home Assurance Company ("American"), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and they applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The preliminary issues are:

1. Should Mr. Richard Gordon be excluded from representing Sujatha Mahendrarajah in these proceedings?

2. Should Mr. Richard Gordon be excluded from representing Thava Mahendrarajah in these proceedings?

Result:

1. Mr. Richard Gordon is excluded from representing Sujatha Mahendrarajah.

2. Mr. Richard Gordon is excluded from representing Thava Mahendrarajah.

INTRODUCTION:

The Mahendrarajahs retained Mr. Richard Gordon, a registered Statutory Accident Benefits Representative (representative), to act for them in their claim for accident benefits. On May 27, 2005, American served a notice of motion seeking to exclude Mr. Gordon from representing the Mahendrarajahs at the arbitration hearing scheduled to commence May 30, 2005 because of an alleged conflict of interest contrary to sections 398, 438 and 439 of the Insurance Act²; Ontario Regulation 7/00, Unfair or Deceptive Acts or Practices, the Code of Conduct for Statutory Accident Benefit Representatives³ (Code of Conduct), and the Schedule.

The issue of Mr. Gordon's potential conflict arose when American's counsel became aware that Mr. Gordon was the sole director of WAD 3 Incorporated (WAD 3)⁴, a company which was described as a "booking agent"⁵ for ADIO DMX, the corporation through which the Mahendrarajahs were assessed. The reimbursement of the costs of those assessments is an issue to be arbitrated at the arbitration hearing.

Mr. Gordon responded that there is no evidence he received a financial benefit, either directly or indirectly, as a result of any relationship that WAD 3 and ADIO might have. Therefore, there was no conflict which would disqualify him.

PROCEDURAL RULING:

The Motion Hearing commenced on May 30, 2005. Mr. Gordon sought an order dismissing the motion as an abuse of process. In the alternative, he argued the motion should be heard as part of the main hearing or it should be adjourned to permit time for him to prepare a response.

I ordered the motion to proceed as a preliminary issue hearing. The materials in support of the motion provided evidence that there was an arbitrable issue. Also, an order disqualifying Mr. Gordon would either leave the Mahendrarajahs without the benefit of a representative or the proceedings would be delayed to permit them time to retain and instruct another representative.

Following these rulings the parties consented to an adjournment to June 1, 2005.

THE LAW:

Prior to defining a conflict of interest which requires the exclusion of a representative, it is necessary to consider whether an arbitrator has the authority to exclude.

A. Does an arbitrator have the authority to exclude a representative from representing an applicant in a proceeding?

Sections 440 and 441 of the Insurance Act provide for the Superintendent to investigate, report and make orders respecting a person engaged in the business of insurance who in the Superintendent's opinion has engaged in or is engaging in or may reasonably be believed to be acting in a manner which would result in the person engaging in an unfair or deceptive act or practice. The Superintendent may order, inter alia, the person who has been investigated to cease and desist engaging in the business of insurance. Section 441 provides a right of appeal from an order of the Superintendent to the Financial Services Tribunal. Do these regulatory provisions preclude an arbitrator from excluding a representative from representing an applicant in a proceeding pursuant to sections 279 to 284 of the Insurance Act? I find that they do not for the reasons which follow.

Sections 284.1 and 398 of the Insurance Act provide for restrictions of those persons who may represent parties to proceedings pursuant to the dispute resolution procedures as set out in sections 279 to 284 and participation in the business of insurance generally to lawyers acting in the normal course of their practice or persons who "comply with prescribed terms and conditions" specified in the regulations.

Section 282(3) provides: "The arbitrator shall determine all issues in dispute, whether the issues are raised by the insured person or the insurer."

Section 23(3) of the Statutory Powers Procedure Act, R.S.O. 1990, Chapter S22, as amended (SPPA), provides:

A tribunal may exclude from a hearing anyone, other than a barrister and solicitor qualified to practise in Ontario, appearing as an agent on behalf of a party or as an adviser to a witness if it finds that such person is not competent properly to represent or to advise the party or witness or does not understand and comply at the hearing with the duties and responsibilities of an advocate or adviser. R.S.O. 1990, c. S.22, s. 23 (3).

Rule 9.9 of the Dispute Resolution Practice Code (Fourth Edition Updated October 2003) (DRPC) provides:

An adjudicator may exclude from a proceeding hearing anyone, other than a duly qualified barrister and solicitor, appearing as a representative or agent on behalf of a party, or as an advisor to a witness, if the adjudicator finds that such person is not competent to properly represent or to advise the party or witness or does not understand and comply with these Rules and the duties and responsibilities of a representative, agent or advisor.

I find the arbitrator's authority to deal with individual proceedings can coexist with the Superintendent's regulatory powers pursuant to section 441. The legislation has not provided that the procedures relating to the Superintendent's authority abrogate an arbitrator's authority to control the proceedings before him or her or to determine an issue in dispute. A representative who has a disqualifying conflict of interest is in non-compliance with the Code of Conduct and the duties and responsibilities of a representative. In such circumstances, a representative is not competent to act. An arbitrator has an obligation to preserve the integrity of the arbitration process by excluding the representative, notwithstanding the result will be to deny the applicant the representative of his or her choice.

B. Definition of a conflict of interest in respect of a representative:

The statutory provisions relevant to determining whether a representative has a disclosable conflict of interest are found in the Insurance Act, Ontario Regulation 7/00 and the Code of Conduct.

Section 438 of the Insurance Act defines "unfair or deceptive acts or practices" as meaning: "any activity or failure to act that is prescribed as an unfair or deceptive act or practice." Section 439 prohibits any person from engaging in an unfair or deceptive act or practice.

Ontario Regulation 7/00, as amended, provides:

4.(1) For the purposes of the definition of "unfair or deceptive acts or practices" in section 438 of the Act, each of the following acts or omissions of a person is prescribed as an unfair or deceptive act or practice if it occurs in connection with an activity described in subsection 398(1) of the Act or in connection with the representation of someone in a proceeding under sections 279 to 284:

4. An act or omission that is inconsistent with the Code of Conduct for Statutory Accident Benefit Representatives issued by the Superintendent and published in The Ontario Gazette, as it may be amended from time to time.

5. The failure by the person to disclose a conflict of interest relating to a claim for statutory accident benefits to anyone who claims the benefits or to the appropriate insurer.

(2) For the purposes of paragraph 5 of subsection (1), a person has a conflict of interest relating to a claim for statutory accident benefits if,

(a) the person could receive, directly or indirectly, a financial benefit that arises out of the claim, other than compensation for providing a service referred to in subsection 398 (1) of the Act or for representing another person;

(3) Subsections (1) and (2) apply to every person other than a barrister and solicitor acting in the usual course of the practice of law, whether the person is prohibited from carrying on an activity described in subsection 398 (1) of the Act or is legally entitled to represent someone in a proceeding under sections 279 to 284 of the Act.

(5) For the purposes of subsection (2), a financial benefit arises out of a claim for statutory accident benefits where the benefit is related to the claim and would not have arisen if the claim had not been made.

Conflict of Interest is defined in the Code of Conduct as follows:

1.2 "Conflict of interest" of a representative relating to a claim for statutory accident benefits means that,

(1) the representative could receive, directly or indirectly, a financial benefit that arises out of the claim, other than compensation for providing a service referred to in subsection 398(1) of the Insurance Act or for representing a claimant;

Sections 3.5 to 3.9 of the Code of Conduct relate to unfair or deceptive acts or practices. Section 3.8 of the Code of Conduct provides that a representative not commit an act or omission that is inconsistent with the Code of Conduct. Section 3.9 requires a representative who has a conflict of interest to disclose it to anyone who claims the benefits and to the appropriate insurer.

The Supreme Court disqualified a law firm for a conflict of interest in the case of MacDonald Estate v. Martin. The respondent firm hired an associate who had previously worked for a firm which had acted for the appellant estate. Justice Sopinka, writing for the majority, characterized the disqualifying conflict test as follows:

The probability of mischief test is very much the same as the standard of proof in a civil case. We act on probabilities. This is the basis of Rakusen. I am, however, driven to the conclusion that the public, and indeed lawyers and judges, have found that standard wanting...the test must be such that the public represented by the reasonably informed person would be satisfied that no use of confidential information would occur. That, in my opinion, is the overriding policy that applies and must inform the court in answering the question: Is there a disqualifying conflict of interest? ...⁶

The issue before me is not the actual or potential misuse of confidential information but whether a reasonably informed member of the public would be satisfied that Mr. Gordon could not receive, either directly or indirectly, a financial benefit arising from the Mahendrarajahs' claims. Should it be found that he could, then the question arises as to whether he disclosed the conflict to both the Mahendrarajahs and American.

THE EVIDENCE:

Mr. Gordon called three witnesses: an administrative assistant employed by ABC Law Clerk Services, whose evidence did not assist in my determination of the issues before me; Dr. D. Zibin, a chiropractor employed by ADIO, who testified that he booked all appointments for DMX assessments and Dr. John Baird, the chiropractor who assessed the Mahedrarajahs.

Dr. Baird testified that he has known Mr. Gordon for two years during which they have developed a professional relationship in which they each refer to one another's practice. Dr. Baird testified that ADIO is a corporate entity which he formed to distinguish his diagnostic practice from his chiropractic practice. For the purposes of this decision a reference to Dr. Baird is an interchangeable reference to his corporation, ADIO. His DMX assessments and the reports in respect of the Mahendrarajahs were conducted through ADIO at the request of Mr. Gordon.⁷

American submitted an affidavit as part of its motion record. Exhibit "I" of the affidavit is the Corporation Profile Report in respect of WAD 3. It indicates the incorporation date was August 11, 2004. Further, the report identifies Mr. Richard Gordon as its administrator and sole director. WAD 3's corporate address is the same as that set out on ABC Law Clerk Services' letterhead.⁸ Exhibit "C" of the affidavit is a letter from Mr. Gordon to Dr. Baird dated September 11, 2004 referring Ms. Thava Mahendrarajah to Dr. Baird for a Digital Radiographic Analysis.⁹ As well, there is a letter dated August 6, 2004 providing the adjuster with ADIO's "WAD 3 Report" and a Disability Certificate completed by Dr. Baird in respect of Ms. Sujatha Mahendrarajah.¹⁰ Dr. Baird prepared two reports in respect of Thava Mahendrarajah. The first report was dated October 21, 2004 and a follow-up report dated February 28, 2005. This correspondence is on ABC Law Clerk Services' letterhead.

Exhibit "D" of the affidavit is a photocopy of the DVD label, entitled ADIO DMX, Digital Motion X-Ray, relating to the assessment of Thava Mahendrarajah. The label had the following statements:

• powered by WAD 3 Incorporated media management and litigation support solutions.

Contact:

WAD 3 Incorporated

Disclaimer:

This study is to be interpreted in conjunction with the accompanying biomechanical report. This DVD may not be duplicated without with [sic] the express permission of the patient. For all enquiries please contact ADIO DMX.

www.adiodmx.ca ¹¹

Exhibit "F" is a copy of WAD 3's business card which describes the company as the booking agent for ADIO DMX and a provider of litigation support services.

Dr. Baird testified that approximately one year ago he became aware of digital motion x-ray technology (DMX) which was unavailable in Ontario. However, he was reluctant to introduce it to Ontario because of the decision of a Commission arbitrator that a Digital Motion Radiography assessment he conducted was not a compensable benefit. Therefore, prior to introducing DMX technology it would be necessary to develop a strategy for making the technology intelligible within the litigation process and he "had to have some discretion in who would have access to the technology until such time as it was recognized in this jurisdiction."¹² In response to a series of questions by American's counsel, Dr. Baird testified that a favourable decision by a tribunal was inevitable and would be in his interest.¹³

In describing the evolution of the business relationship between himself and Mr. Gordon, Dr. Baird testified that Mr. Gordon showed a special interest in the DMX and DMR technologies. Dr. Baird credited Mr. Gordon with having compiled a research brief explaining the DMX assessment procedure. Dr. Baird envisioned Mr. Gordon's company, WAD 3, as being a "repository of information." Mr. Gordon was to be available to deal with inquiries from the public which might be generated by the ADIO web site. It was expected that Mr. Gordon's law clerk business would expand as a consequence. However, there was no intention that WAD 3 or Mr. Gordon would benefit financially either directly or indirectly from the assessments Dr. Baird conducted.¹⁴ Dr. Baird testified that the only financial contribution made by ADIO to WAD 3 was ADIO's payment of its fifty per cent share of the cost of a promotional exhibit at an Ontario Bar Association conference in the amount of $193.25.¹⁵

Dr. Baird testified that he made it a condition of Mr. Gordon's involvement that he would have a corporate entity separate from his SABS related business to avoid a conflict of interest.¹⁶ Dr. Baird expanded on his rationale for a separate corporation stating:

My thought was that they could be like two different shelves. On one shelf is this activity, and the other shelf is this activity. As long as you didn't do the two at the same time, I didn't see there being a conflict of interest, because I didn't see the activity of WAD 3 as being directly connected to what I was doing.¹⁷

Dr. Baird's evidence with respect to Mr. Gordon's or WAD 3's role as a "booking agent" was ambiguous. He testified that he provided Mr. Gordon of ABC Law Clerk Services with a DVD of the Mahendrarajahs' assessment reports for distribution. However, he did not know that the DVD he provided would be transferred to a DVD bearing WAD 3 information on its cover.¹⁸ He denied any knowledge that WAD 3 was holding itself out as ADIO's booking agent until he became aware of the motion.¹⁹ Dr. Baird had previously testified that bookings and referrals to ADIO might result from inquiries received by Mr. Gordon through the web site.²⁰ He also corroborated Dr. D. Zibin's evidence that he booked appointments for the DMX assessments.²¹

Findings of Fact:

I find that WAD 3 and ABC Law Clerk Services are both businesses of Mr. Gordon. There was no evidence to rebut the presumption raised by the Corporation Profile Report that Mr. Gordon as the corporation's administrator and its sole officer is its controlling and directing mind. I find that references to either WAD 3 or Mr. Gordon are interchangeable.

Mr. Gordon in concert with Dr. Baird developed a promotional strategy to use Mr. Gordon's research as the means by which DMX assessment technology would be made intelligible within the litigation process. The strategy relies on obtaining a decision of a tribunal that DMX assessment technology is a compensable expense. Further, the success of WAD 3's promotional activities would result in an expansion of Mr. Gordon's law clerk practice. I find that Mr. Gordon's representation of persons who have undergone a DMX assessment before the Commission is an essential element of the promotion strategy.

I find that WAD 3 held itself out as a booking agent for ADIO. Further, that WAD 3's role as a booking agent is not inconsistent with Dr. Zibin's responsibilities to set assessment appointments.

Dr. Baird's assessments and reports relating to Ms. Sujatha Mahendrarajah predate the incorporation of WAD 3 by two days. I find that the relationship between Mr. Gordon and Dr. Baird, which gives rise to the potential conflict, existed on August 6, 2004, the date upon which Mr. Gordon forwarded Dr. Baird's report to American. I conclude that the promotion strategy which relied on the successful finding of a tribunal that the DMX assessment technology was a compensable benefit was in the mind of Mr. Gordon at the time he provided Dr. Baird's report in respect of Ms. Sujatha Mahendrarajah to American.

I find that the success of WAD 3, including its financial success, were inextricably connected to the acceptance of DMX technology.

ANALYSIS:

Mr. Gordon, as a registered representative, is required to comply with the Code of Conduct. The Insurance Act designates the Superintendent as the regulatory authority in respect of a representative's conduct pursuant to the Code of Conduct. However, a hearing arbitrator has the separate and distinct authority to exclude an incompetent representative or one who does not comprehend and comply with the duties and responsibilities of a representative. In considering whether to exclude a representative a hearing arbitrator may look to the Code of Conduct for guidance as to the duties and responsibilities of a representative and the expected standard of conduct.

Mr. Gordon and Dr. Baird have a close business relationship born of mutual respect and their common interest in promoting DMX technology. WAD 3 was incorporated at Dr. Baird's behest to permit Mr. Gordon to have access to the technology. WAD 3 is in the business of promoting the DMX technology. A corporate entity was a condition precedent, set by Dr. Baird, to Mr. Gordon having access to and benefiting from the DMX technology controlled by Dr. Baird.

Dr. Baird testified that the decision in Cante, in which the arbitrator found that the assessment was not a compensable expense pursuant to the Schedule, caused him to be cautious about the introduction of DMX technology in Ontario. WAD 3 was incorporated to promote ADIO and its DMX assessment technology through the provision of litigation support and to shield Mr. Gordon's promotional activities from an allegation of conflict of interest. Dr. Baird finds in Mr. Gordon a knowledgeable and trusted advocate for the technology. Dr. Baird and Mr. Gordon have a reciprocating referral arrangement. It was expected that Mr. Gordon's law clerk business would expand if a positive decision from a Commission arbitrator was obtained. To permit Mr. Gordon to use WAD 3 to avoid his obligations to comply with the provisions of the Code of Conduct in respect of his representation of the Mahendrarajahs would undermine the integrity of the hearing process.

There was no evidence that WAD 3 or Mr. Gordon has received a direct financial benefit from Dr. Baird's assessments of the Mahendrarajahs. However, the test is: could Mr. Gordon receive a financial benefit, either directly or indirectly, from his representation of the Mahendrarajahs.

Applying the reasoning in MacDonald Estate, I find that a reasonably informed member of the public would not be satisfied that Mr. Gordon would not or could not derive a direct or indirect financial benefit from the claims of the Mahendrarajahs in respect of ADIO's accounts.

Mr. Gordon's representation of the Mahendrarajahs in respect of their claims for payment of the ADIO assessment fees was fatally tainted by his self interest as the advocate for the technology. Mr. Gordon, as the advocate for DMX assessment technology and for the Mahendrarajah's, was acting from both "shelves" at the same time. Therefore, Mr. Gordon is in a conflict of interest which he was obligated to disclose to the Mahendrarajahs and American.

No evidence was advanced that Mr. Gordon had disclosed a potential or actual conflict to the Mahendrarajahs. However, his failure to disclose to American which is the "appropriate insurer" is sufficient to base a finding that he was acting in an undisclosed conflict of interest. As a result, he is not complying with his obligations and responsibilities pursuant to the Code of Conduct and is not competent to represent the Mahendrarajahs in the hearing pursuant to Rule 9.9 of the DRPC and section 23(3) of the SPPA. Therefore, Mr. Gordon is excluded from the hearing.

I appreciate that this result will deny the Mahendrarajahs the representative of their choice. However, preserving the integrity of the process by insuring that their representative is not acting in a conflict of interest, which could financially benefit him personally to their detriment, takes precedence over the inconvenience of retaining and instructing another representative.

CONCLUSION:

Mr. Gordon is the sole director and directing mind of WAD 3, a company that promotes DMX assessment technology. I find that the incorporation of WAD 3 does not relieve Mr. Gordon of his obligations to disclose a conflict of interest where he or WAD 3 could receive a direct or indirect financial benefit arising from the Mahendrarajahs' claims for payment of ADIO's account.

By acting for the Mahendrarajahs while engaged in a promotional strategy to gain acceptance of DMX assessment technology as a compensable benefit pursuant to the Schedule through arbitration, he has placed himself in a conflict of interest. He failed to disclose the conflict to American. Therefore, Mr. Gordon is not complying with his obligations and responsibilities pursuant to the Code of Conduct and is not competent to represent the Mahendrarajahs in the hearing. As a consequence he is excluded from representing them at the hearing. While this result denies them the representative of their choice this is a necessary inconvenience to preserve the integrity of the hearing process.

EXPENSES:

This motion hearing was argued prior to the release of a Commission decision in respect of the issue and is therefore novel. Having regard to the expense criteria set out in section 12 of Ontario Regulation 664, I find that each party should bear their own expenses of this application.

August 22, 2005

Denise Ashby Arbitrator

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2005 ONFSCDRS 117

FSCO A04-001270

BETWEEN:

SUJATHA MAHENDRARAJAH Applicant

and

AMERICAN HOME ASSURANCE COMPANY Insurer

AND

FSCO A04-001268

BETWEEN:

THAVA MAHENDRARAJAH Applicant

and

AMERICAN HOME 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. Mr. Richard Gordon is excluded from representing Sujatha Mahendrarajah in these proceedings.

2. Mr. Richard Gordon is excluded from representing Thava Mahendrarajah in these proceedings.

3. Each party shall bear their own expenses of this application.

August 22, 2005

Denise Ashby Arbitrator

Footnotes

1. 1The Statutory Accident Benefits Schedule —Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2R.S.O. 1990, c. I-8, as amended
3. 3Issued by the Superintendent of Financial Services Effective November 1, 2003
4. 4American's Motion Record, Tab 2, Exhibit "I"
5. 5American's Motion Record, Tab 2, Exhibit "F"
6. 61990 CanLII 32 (SCC), [1990] 3 S.C.R.1235, paragraphs 13 and 44
7. 7Transcript of Hearing, page 74
8. 8American's Motion Record, Tab 2, Exhibit "H"
9. 9American's Motion Record, Tab 2, Exhibit "C"
10. 10American's Motion Record, Tab 2, Exhibit "B"
11. 11American's Motion Record, Tab 2, Exhibit "D"
12. 12Transcript of Hearing, pages 68 and 69, Dr. Baird referred to the decision in Cante and State Farm Mutual Automobile Insurance Company, (FSCO A97-000627, October 26, 1998)
13. 13Transcript of Hearing, pages 95 and 96
14. 14Transcript of Hearing, page 71
15. 15Ibid, page 77
16. 16Transcript of Hearing, Pages 107 and 118 and 119
17. 17Transcript of Hearing, Pages 118 and 119
18. 18Transcript of Hearing, Pages 76 and 98
19. 19Transcript of Hearing, page 99
20. 20Transcript of Hearing, page 70
21. 21Transcript of Hearing, page 102