Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2005 ONFSCDRS 67

Appeal P04-00024

OFFICE OF THE DIRECTOR OF ARBITRATIONS

ROYAL & SUNALLIANCE INSURANCE COMPANY OF CANADA

Appellant

and

ESTATE OF SHIRAZ JIWA

Respondent

Before:

Nancy Makepeace

Representatives:

Stanley C. Tessis for Royal

Paul A. Gemmink for Mr. Jiwa's Estate

Hearing Date:

May 3, 2005, by telephone conference

ARBITRATION and APPEAL EXPENSES ORDER

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

The parties shall bear their own expenses of the arbitration and appeal.

May 18, 2005

Nancy Makepeace Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This is an expenses dispute arising out of my appeal decision dated January 13, 2005. Both parties seek their expenses of the appeal. They agree I should decide the expenses of the arbitration, but disagree on the appropriate disposition of the issue.

II. BACKGROUND

Mr. Shiraz Jiwa was injured in an automobile accident on May 15, 1998. He retained Mr. Sergio Mendez, a paralegal, to represent him in respect of his accident benefit dispute with Royal & SunAlliance Insurance Company of Canada. In December 1999, Mr. Mendez settled the claim on Mr. Jiwa's behalf. Mr. Jiwa signed a disclosure notice and a full and final release in consideration of $15,000 to be paid to him. Royal's settlement cheque was made payable to Mr. Jiwa but was mailed to Mr. Mendez, in accordance with the retainer agreement between Mr. Jiwa and Mr. Mendez' firm. Only about $5,000 of the payment reached Mr. Jiwa. In April 2001, Mr. Mendez pleaded guilty to 19 counts of "theft over [$5,000]" in respect of Mr. Jiwa and others he had defrauded, and a restitution order was made. Though Mr. Jiwa was named in the restitution order, no money was ever paid.

In early 2003, Mr. Jiwa applied for arbitration. He claimed that Royal breached the method of payment rules in s. 44(1)(a) of the SABS-1996¹ by mailing the cheque to Mr. Mendez rather than himself. Royal argued that s. 44 applies only to benefit payments, and therefore Mr. Jiwa must seek his remedy in the courts. Mr. Jiwa passed away before the arbitration hearing. Mrs. Jiwa continued the claim on behalf of the estate.

The arbitrator accepted Mr. Jiwa's claim in a decision dated June 14, 2004. He concluded that Royal was required by s. 44(1) to deliver the settlement cheque directly to Mr. Jiwa's home. He deferred a decision on whether Royal should be ordered to pay the outstanding amount of the settlement in order to invite further evidence and submissions about the restitution order, which was not available at the arbitration hearing. He also deferred a decision on interest under s. 46(2) of the SABS-1996 and arbitration expenses under s. 282(11) of the Insurance Act, inviting the parties to contact him within 30 days to resume the hearing on these issues. The parties did not respond. Mr. Gemmink explained that despite the efforts of his office, the restitution order was not available until a few days before the appeal hearing in October 2004, making a resumption of the arbitration proceeding impractical.

Instead, Royal appealed, claiming that the arbitrator erred with respect to his interpretation of s. 44(1)(a) of the SABS-1996 and lacked jurisdiction to decide what was, in the insurer's view, a settlement enforcement proceeding.

The appeal was allowed. I accepted Royal's submission that s. 44(1)(a) does not apply to settlement payments and that the dispute is beyond arbitral jurisdiction. I invited the parties to proceed in accordance with Rule 79 of the Dispute Resolution Practice Code if they were unable to agree on appeal expenses.

III. ANALYSIS

FSCO adjudicators have authority, under s. 282(11) of the Insurance Act, to order either party to an arbitration or appeal to pay all or part of the expenses of the other, or to make no expenses order. The adjudicator's discretion is to be exercised in accordance with the criteria set out in the expenses regulation:²

(2) An arbitrator shall, under subsection 282(11) of the Act, consider only the following criteria for the purposes of awarding all or part of the expenses incurred in respect of an arbitration proceeding:
Each party's degree of success in the outcome of the proceeding.
Any written offers to settle made in accordance with subsection (3).
Whether novel issues are raised in the proceeding.
The conduct of a party or a party's representative that tended to prolong, obstruct or hinder the proceeding, including a failure to comply with undertakings and orders.
Whether any aspect of the proceeding was improper, vexatious or unnecessary.

On behalf of Royal, Mr. Tessis submits that the insurer should be awarded its arbitration and appeal expenses because it was entirely successful in resisting Mr. Jiwa's claim. On behalf of Mr. Jiwa's estate, Mr. Gemmink submits that my expenses order should take account of his success at arbitration.

As there were no offers to settle, Royal submits the second paragraph is not a factor. On behalf of Mr. Jiwa's estate, Mr. Gemmink submits that Royal's failure to make an offer, despite the fact that its legal costs exceeded the amount in issue, should count against it in respect of expenses. Royal counters by noting that no offers were made on behalf of Mr. Jiwa's estate either.

Mr. Gemmink submits that the arbitration and appeal raised novel issues. As evidence of their novelty, he cites the differing decisions reached at arbitration and appeal, and the parties' legal submissions on point. Mr. Tessis submits that my appeal decision made no reference to novelty and relied, in the end, on previous decisions about jurisdiction, especially Branchaud and Co-operators General Insurance Company, (OIC P96-00048, May 2, 1997).

The parties agree there were no conduct issues in this appeal.

Royal submits that the proceeding was improper in light of my finding that the arbitrator lacked jurisdiction to dispose of what was essentially a settlement enforcement proceeding. Mr. Gemmink submits, on behalf of Mr. Jiwa's estate, that FSCO adjudicators have authority to define their own jurisdiction and therefore Mr. Jiwa was entitled to commence an arbitration proceeding and the arbitrator was entitled to decide the issue. Similarly, Royal was entitled to commence the appeal, despite taking the position that the dispute was beyond FSCO's jurisdiction.

In my view, the most important criteria in this case are the outcome of the proceeding and the novelty of the issues. Royal succeeded entirely in its appeal, but the arbitrator's reasons, on which Mr. Jiwa's estate relied, had considerable strength. There had been no previous decision on the application of s. 44(1)(a) to settlement payments or the interaction of the settlement regulation and the method of payment provisions of the SABS. Though I considered previous jurisdiction decisions, including Branchaud, none applied directly in this situation, making that issue a novel one too. Given the novelty of the issues, it is not surprising that no settlement offers were made, and therefore I need not consider whether a successful party's failure to make a settlement offer is a criterion in awarding expenses.

I do not accept Royal's argument that the implication of my appeal decision is that the arbitration proceeding was improper. On that point, I agree with Mr. Gemmink: Mr. Jiwa was entitled to engage the arbitration process, just as Royal was entitled to appeal the arbitrator's decision. This follows from well established principle that FSCO, like any administrative tribunal, has authority to determine whether an issue is within its jurisdiction and is required to do so. The issues in dispute in this case deserved to be heard.

I am not persuaded this is a case for the exercise of my discretion to make an expenses award. The parties shall bear their own expenses of the arbitration and appeal.