Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2006 ONFSCDRS 169

FSCO A04-000068

BETWEEN:

RUGANRAJ SEBAMALAI

Applicant

and

ROYAL & SUNALLIANCE INSURANCE COMPANY OF CANADA

Insurer

DECISION ON EXPENSES

Before:

Suesan Alves

Heard:

By teleconference call and written submissions received by July 21, 2006.

Appearances:

No one appeared for Mr. Sebamalai Andrew Suboch for Mr. Nterekas Kadey B.J. Schultz for Royal & SunAlliance Insurance Company of Canada

In an earlier decision,¹ I ordered Mr. Nterekas, a paralegal registered as a statutory accident benefits representative, to personally pay Royal's expenses as agreed upon or assessed pursuant to subsection 282(11.2) of the Insurance Act. Royal requested an assessment of its expenses.

The issue in this hearing is:

What is the assessed amount of Royal's expenses?

Royal's expenses are assessed in the amount of $2,910.41

Background

In January 2004, Laraia/Nterekas submitted an Application for Arbitration to the Financial Services Commission of Ontario. The Application was incomplete. Page two was unsigned by the Applicant. In addition, the Applicant had not certified that Mr. Nterekas had full authority to discuss and settle all issues. The case administrator noted the deficiencies and returned the incomplete Application.

The Application form dated January 20, 2004 was resubmitted to the Commission, and it contained two signatures. The Commission registered the application on January 23, 2004.

Royal filed a Response, a pre-hearing was conducted, and a date was set for the hearing. Mr. Nterekas attended the pre-hearing, and purported to represent Mr. Sebamalai. He agreed to advise the Commission within 30 days whether he had been able to locate Mr. Sebamalai to have him sign authorizations so that the productions Royal requested could be obtained.

Royal's adjuster obtained Mr. Sebamalai's current address from its policyholder and interviewed Mr. Sebamalai. The adjuster reported that Mr. Sebamalai had informed him that he had not authorized the commencement of the arbitration.

Mr. Nterekas asked to be removed from the record. In that context, he disclosed that he had not heard from Mr. Sebamalai since about November 25, 2003. This was approximately two months before Mr. Nterekas resubmitted the Application for Arbitration to the Commission which was purportedly signed and certified by Mr. Sebamalai.

Mr. Nterekas was given an opportunity to respond to the allegations that the arbitration was unauthorized and to respond to Royal's request that he or Mr. Sebamalai pay Royal's expenses. Mr. Nterekas provided a history of his difficulty in contacting Mr. Sebamalai, but did not address the key concerns. I concluded that Mr. Nterekas commenced this arbitration proceeding without authority and ordered him to pay Royal's expenses as agreed upon or assessed.

Royal requested an assessment of expenses as no agreement was reached with respect to expenses.

The Bill of Expenses

Royal's Bill of Expenses sets out Royal's claim for fees and disbursements calculated pursuant to the Dispute Resolution Practice Code — Fourth Edition, Updated October 2003, ("the Code") at Legal Aid rates. It also sets out fees and disbursements calculated on a substantial indemnity basis under the Rules of Civil Procedure made pursuant to the Courts of Justice Act. I will first deal with the claim for fees and disbursements under the Code.

Royal claims $2,910.41 being $2,559.01 for fees, $161.00 for disbursements and $190.40 for GST. Counsel for Mr. Nterekas submitted that $1,500 was a reasonable amount to allow for Royal's expenses, but took no issue with any of the amounts detailed in the Bill.

The Criteria

The criteria to be used in awarding all or part of the expenses incurred in respect of an arbitration proceeding are each party's degree of success in the outcome of the proceeding; any written offers to settle; whether novel issues are raised in the proceeding; the conduct of a party or the representative of a party that tended to prolong, obstruct or hinder this proceeding; and whether any aspect of the proceeding was improper, vexatious or unnecessary.²

In this case, I find the degree of success to be an irrelevant consideration, because the arbitration application was unauthorized and the arbitration did not proceed to a hearing. I was not apprised of any written offers to settle. There was some degree of novelty in relation to the issue of whether the arbitration was commenced without the Applicant's authority.

In this case, I find the significant criteria are Mr. Nterekas' conduct in commencing an arbitration without Mr. Sebamalai's authority which rendered the entire proceeding improper and an abuse of the Commission's process. Royal was put to time and expense in responding to the Application for Arbitration which was improperly commenced in Mr. Sebamalai's name.

At the expenses assessment hearing, counsel for Mr. Nterekas submitted that while Mr. Sebamalai did not authorize or sign the Application for Arbitration this case was not one which involved lying or the manufacture of evidence. He submitted that from a practical point of view, Mr. Nterekas commenced the arbitration because of an approaching limitation period. This was the first occasion on which this argument was advanced.

Counsel for Royal submitted that there was no limitation issue—Royal denied Mr. Sebamalai's benefits in October, 2002 and the arbitration application was filed some nine months before the two-year limitation period expired. The Report of Mediator supports the submission of counsel for Royal with respect to the income replacement benefits claim. I find no merit in the submission that Mr. Nterekas commenced the arbitration because of an approaching limitation period and I reject it.

Counsel for Mr. Nterekas submitted that a global amount of $1,500 was a reasonable amount for Mr. Nterekas to pay for Royal's expenses. I have reviewed the account which Royal submitted and I find it reasonable. I assess Royal's expenses as submitted in the amount of $2,910.41.

Substantial Indemnity

Royal also submitted its Bill of Expenses calculated on a substantial indemnity basis in the amount of $7,618.96, inclusive of GST under the Rules of Civil Procedure made pursuant to the Courts of Justice Act. Those Rules do not govern proceedings at this tribunal.

Were I persuaded that I had the authority to make an award in favour of Royal which provided substantial indemnity, I would not hesitate to do so. Fairness requires that Mr. Nterekas restore Royal to the financial position it would have been in, but for his actions. Such an award would also serve as a deterrent to others who may contemplate abusing the Commission's process.

I invited counsel to provide written submissions as to whether an arbitrator at the Financial Services Commission acting under sections 20 and 282 of the Insurance Act has an equitable power to award expenses which would indemnify a party, in this case, the Insurer. I was not persuaded by the submissions I received that I had the authority to do so, for the reasons set out below.³

Section 282(11.2) of the Insurance Act states:

Liability of representative for costs

(11.2) An arbitrator may make an order requiring a person representing an insured person or an insurer for compensation in an arbitration proceeding to personally pay all or part of any expenses awarded against a party if the arbitrator is satisfied that,

(a) in respect of a representative of an insured person, the representative commenced or conducted the proceeding without authority from the insured person or did not advise the insured person that he or she could be liable to pay all or part of the expenses of the proceeding;

(b) in respect of a representative of an insured person, the representative caused expenses to be incurred without reasonable cause by advancing a frivolous or vexatious claim on behalf of the insured person; or

(c) the representative caused expenses to be incurred without reasonable cause or to be wasted by unreasonable delay or other default. 2002, c. 22, s. 127.

In this case, I was satisfied that Mr. Nterekas commenced this proceeding without Mr. Sebamalai's authority within the meaning of subsection 282(11.2) (a) of the Act. I was also satisfied that Mr. Nterekas caused Royal to incur expenses without reasonable cause within the meaning of subsection 282(11.2)(c) of the Act.

Subsection 282(11.2) gives an arbitrator the authority to order Mr. Nterekas to personally pay all or part of any expenses awarded against a party. (Emphasis added). Conceptually, an arbitrator can order a representative to pay all or part of the expenses that a party may be obliged to pay. In my view, the words awarded against a party modify and limit the amount that a party's representative can be required to pay to the amount that a party to an arbitration can be required to pay.

The expenses awarded to a party following an arbitration hearing are modest and are primarily based on Legal Aid hourly rates.⁴ In most cases, an award of expenses at the Commission will only partly compensate a party for his or her actual legal expenses.

Counsel for the Insurer relied on subsection 23(1) of the Statutory Powers Procedure Act, R.S.O. 1990, c. S.22, ("SPPA"). That section states that "A tribunal may make such orders or give such directions in proceedings before it as it considers proper to prevent abuse of its processes." Counsel for Royal submitted that given the decision of the Divisional Court in the case of Royal & SunAlliance Insurance Co. of Canada v. Volfson, Shuster and the Financial Services Commission of Ontario,⁵ I had the requisite power to award costs at a level which would indemnify Royal.

Counsel relied on the paragraph in that decision which states: "Volfson's conduct was improper, was an abuse of the process of the tribunal and resulted in expenses being incurred by the Shusters and Royal before the Tribunal. It must surely be part of a tribunal's power to prevent abuse to ensure that those who perpetrate such abuse not be permitted to do so with impunity. Accordingly, requiring Volfson to pay the expenses of the innocent parties must be seen as a logical and necessary extension of the tribunal's control of its own process and its power to prevent them from being abused."

I do not read the decision of the Divisional Court in Volfson quite as broadly. In my view, Mr. Nterekas' conduct was unreasonable within the meaning of section 17 of the SPPA. This tribunal has made rules with respect to costs which address the misconduct of the representative of a party and the impropriety of any aspect of the proceeding. The Commission's Rules made pursuant to section 25.1 of the SPPA are contained in the Code. However, as noted earlier, the Code expressly limits costs or expense awards to Legal Aid rates and these rates are not at a substantial indemnity level.

For these reasons I conclude that I am unable to award Royal expenses on a substantial indemnity basis. Instead, I assess Royal's arbitration expenses in the amount of $2,910.41.

Order:

Mr. Alexander Nterekas shall pay Royal its arbitration expenses as assessed, in the amount of $2,910.41.

November 1, 2006

Suesan Alves Arbitrator

Date