Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2007 ONFSCDRS 224 FSCO A04-001702

BETWEEN:

VELUPILLAI YOGARAJAH Applicant

and

RBC GENERAL INSURANCE COMPANY Insurer

DECISION ON EXPENSES

Before: David Muir Heard: On September 28 2007, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances: Donata Di Iorio for Mr. Yogarajah John D. Dean for RBC General Insurance Company

Issues:

The Applicant, Velupillai Yogarajah, was injured in a motor vehicle accident on June 8, 2003. In a decision dated May 9, 2007, I dealt with his claims for statutory accident benefits under the Schedule.¹ I made the following orders, while reserving on the issue of expenses:

1. Mr. Yogarajah is entitled to income replacement benefits (IRB) from August 24, 2003 to September 25, 2003 and from November 11, 2003 to February 17, 2004, pursuant to section 4 of the Schedule.
2. Mr. Yogarajah is entitled to housekeeping and home maintenance in the amount of $20 per week, from August 19, 2003 to December 19, 2003, pursuant to section 22 of the Schedule.
3. Mr. Yogarajah is entitled to interest on these amounts found to be owing, calculated in accordance with section 46 of the Schedule.

The issue in this further hearing is:

1. Is either party entitled to his expenses incurred in respect of this arbitration hearing?

Result:

1. Mr. Yogarajah is entitled to his expenses of the arbitration.

EVIDENCE AND ANALYSIS

Both parties seek their expenses of the arbitration. Alternatively, RBC takes the position that the parties should bear their own expenses.

RBC submits that of the six factors I am required to consider in determining which party if any is entitled to have its expenses paid, only the first and second are relevant. RBC submits that Mr. Yogarajah enjoyed only limited success vindicating his claims and therefore ought to be required to pay RBC its expenses. RBC also relied upon an offer it made to Mr. Yogarajah in conformity with Rules 76 and 77.

I have considered the submissions of the parties and find that Mr. Yogarajah is entitled to his reasonable expenses of the arbitration. Considerable uncertainty in the awarding of expenses has arisen since the provisions of Regulation 664 were amended in October 2003.²

The criteria that I am now required to consider are contained in O. Reg. 664 and are set out below:

12.(1) The expenses set out in the Schedule are prescribed for the purpose of subsection 282 (11) of the Act. R.R.O. 1990, Reg. 664, s. 12.

(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:

1. Each party’s degree of success in the outcome of the proceeding.
2. Any written offers to settle made in accordance with subsection (3).
3. Whether novel issues are raised in the proceeding.
4. 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.
5. Whether any aspect of the proceeding was improper, vexatious or unnecessary.

A sixth factor related to an insured person’s failure to attend at an insurer’s assessment was not raised by the parties and is not relevant to my determinations.

It is important to recall that the expenses regime applicable to these claims has evolved over time. Prior to November 1996, arbitration expenses could be awarded to the Applicant only, and not to the Insurer. Expenses were normally awarded to the Applicant despite the outcome of the arbitration, unless the claim was fraudulent or frivolous or the Applicant engaged in some other conduct which merited intervention on expenses.

Amendments to the Regulation in November 1996 allowed arbitrators to award expenses to insurers as well as to Applicants. Criteria for determining entitlement to an expense Order were included in the Regulation. These criteria were with one important exception similar to the existing ones. The changes were recognized as having signaled a legislative intent to move the expenses regime further along a continuum to a more results oriented approach. Despite the changes unsuccessful Applicants continued to be awarded their expenses despite losing on the merits of their claim unless it was found manifestly unfounded or borderline fraudulent.

As noted the Regulation was amended again in 2003. Amongst the first decisions to consider the current expenses regime was an appeal decision in Pembridge Insurance Company and Howden.³ The appeal was argued prior to the change in the Regulation, but the decision was released some two months after the changes were effective.

After describing the legislative history of the expenses rules as discussed earlier, the Director made the following concluding remarks on the effect of the changes:

The new criteria, introduced on October 1, 2003, continue the move toward a more results based approach to expenses. The list of criteria have been changed to some extent, but more significantly, the criteria are now the only factors that can be considered and there is no longer a broad, “any other matter criterion.”

In determining that the parties ought to bear their own expenses the Director considered that the outcome of the appeal was mixed. The Applicant had substantial success on the IRB issue and expenses issue although Insurer had raised legitimate challenges to the Arbitrator’s approach on both issues. This, in the Director’s view, worked to relieve Pembridge from the obligation to pay Ms. Howden’s expenses but it did not mean that Ms. Howden was required to pay the Insurer’s expenses. The Director also seems to have considered the relative size of the claim for expenses without indicating which of the enumerated criteria this factor might fall under.

In the circumstances, including Pembridge’s significantly higher claim for expenses, I conclude that the most appropriate result, consistent with the criteria, is for the parties to bear their own appeal expenses.

A later appeal decision by the Director’s Delegate in, Truong and Lumberman’s Mutual Casualty Company ⁴ offered the following views on the possible effects of these most recent changes:

In addition, I am uncertain whether the court decisions are directly applicable in the arbitration context because rules about costs or expenses are specific to the particular forum. The dispute resolution scheme at FSCO was intended, amongst other remedial purposes, to provide a more accessible alternative to the courts. This remains its mandate, despite the amendments to the 1990 version of the expenses regulation that have progressively tilted expenses towards the successful party. (Emphasis added)

There is no doubt that the new expense regulation has tilted the scheme away from the situation where insured persons were generally entitled to their expenses unless their case was patently lacking any merit at all. Accordingly, I think it plain that completely unsuccessful applicants are much less likely to get all or indeed any, of their expenses paid than would have been the case under the predecessor expenses regime.

However, I note that the legislature has retained the language “each party’s degree of success” in the first factor relied upon by State Farm. I note that this language is different than under Rule 57 of the Rules of Civil Procedure which speaks of a primary factor in exercising the discretion in the Court to award costs as being the “result in the proceeding.” It has also preserved the requirement that I consider whether any aspect of the proceeding was improper, vexatious or unnecessary. I agree with the Arbitrator in McLellan and Aviva Canada Inc. (FSCO A06-001263, February 12, 2007), that these provisions have to be interpreted in light of the overall nature and purpose of the Statutory Accident Benefits scheme.

These are first party claims. One of the primary objectives of the automobile insurance scheme in Ontario is consumer protection, according to the Supreme Court of Canada.⁵ I take it that the consumer to be protected in this context is the insured person seeking benefits, not insurance premium payors or the public in general. The dispute resolution process was intended to provide a more accessible alternative to the courts, including the costs regime available in that forum. Although there remain private law elements to the whole legislative scheme, it is to my mind plainly counter-intuitive, to interpret the expense regulation as a “winner take all” scheme or, more to the point in these circumstances that even where an applicant is partially successful that success is entirely vitiated by the expenses of the process.

Mr. Yogarajah was partially successful in his Application for Arbitration. He was not wholly successful by any means, however as I interpret the provisions of the expense regulation the question in this case must be whether there are any reasons why Mr. Yogarajah should not be entitled to his expenses.

In this regard RBC relied upon a written Offer to Settle which appears to have been proffered in accordance with the relevant Rules. In any event no objection was made to RBC’s reliance upon it.

RBC made submissions which purported to introduce the position of Mr. Yogarajah as articulated in a settlement discussion prior to the hearing. Mr. Yogarajah did not object per se but did submit in response that it was inappropriate to place any reliance upon such a submission. I agree for a number of reasons, not least of which is that content of what is said in furtherance of settlement are privileged communications and should not be referred to later.

RBC offered $10,000 inclusive of expenses for a Full and Final Release of all of Mr. Yogarajah’s claims. Mr. Yogarajah claims at the hearing were greatly in excess of that amount, however even his limited success was materially greater than the offer, without any consideration for his significant legal expenses.⁶ Morever the proposal would have required a Release of RBC from any obligations it might have in future to fund medical and rehabilitation, amongst other potential benefits. An insurer who wants a final Release ought to expect to pay something for the benefit of shifting the risk of further needs on to the insured person. In this case given Mr. Yogarajah’s ongoing difficulties - whether or not they prevent him from returning to work - it was not unreasonable for him to have not accepted the offer to settle and accordingly I find that the settlement offer made does not shift the burden of expenses on to Mr. Yogarajah.

As indicated earlier there was nothing else in the conduct of either party in this case that would merit an expenses consequence. I find therefore that Mr. Yogarajah is entitled to his reasonable expenses of the arbitration.

RBC also takes issue with the quantum of expenses sought by Mr. Yogarajah. I agree with the submission that both the legal fees sought and the disbursements incurred are somewhat excessive and would reduce both significantly.

It is generally not appropriate to do a line by line examination of a lawyer’s account and I do not intend to do one here. But by way of explanation I would point out that the fees for the report of Dr. Salmon is more than double the maximum allowed in the Schedule to Regulation 664 for a not terribly helpful report. I would discount the fee payable for both Dr. Salmon’s and Dr. Prutis’ report to $1,000. I also agree with RBC that the fee charged by Dr. Asirwathan is somewhat excessive and would award only $1,900 for his two half days of attendance, preparation and report. The other disbursements with the exception of the search fee of $27.50 are not obviously excessive.

I find there for that Mr. Yogarajah is entitled to his disbursements in the amount of $6,019 plus GST of $361.14.

As for the legal fees, this was a relatively straightforward case. What complexity there was lay in the medical mystery surrounding Mr. Yogarajah’s injuries and their consequences. To my mind this case should have required no more than one and half hours to two hours of preparation for each hour of hearing time. The hearing ran over four not overly long days. Mr. Dean records 22.5 hours of actual attendance accords with my recollection of a relatively leisurely hearing. Giving some allowance for the relative inexperience of counsel, I find that Mr. Yogarajah is entitled to be paid for 50 hours of Ms. Donato’s time.

RBC also took issue with Mr. Kazdan’s assistance on the file. The amount claimed in this regard is 4.7 hours. I do not find this unreasonable.

RBC took issue with the amount of clerical time utilized on the file, in particular the attendance of a law clerk to assist Ms. Donato at the hearing. The total is greatly in excess of that utilized on RBC’s behalf. I accept RBC’s submission and would deduct from the total clerical hours, 22.5 for attendance at the hearing bringing the total more in line with that of RBC.

Accordingly I find that Mr. Yogarajah is entitled to following fees for his legal representation:

4.7 hours @ $ 150.00 45 hours @ $ 73.87 50 hours @ $ 23.00

As I calculate it this totals $5,548.50 plus GST of $332.91.

I find that Mr. Yogarajah is entitled to his reasonable expenses of the arbitration in the amount of $12,261.55 inclusive of GST.

November 15, 2007

David Muir Arbitrator

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2007 ONFSCDRS 224 FSCO A04-001702

BETWEEN:

VELUPILLAI YOGARAJAH Applicant

and

RBC GENERAL INSURANCE 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. Yogarajah is entitled to be paid his reasonable expenses of the arbitration in the amount of $12,261.55, inclusive of GST.

November 15, 2007

David Muir Arbitrator

Footnotes

1. 1The Statutory Accident Benefits Schedule - Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2O. Reg. 275/03, s. 4
3. 3P02-00031 May 17, 2004
4. 4P03-00007, March 31, 2005.
5. 5Smith v. Co-operators General Insurance Co., 2002 SCC 30, [2002] 2 S.C.R. 129.
6. 6I was advised that with interest, the amounts found payable to Mr. Yogarajah were in excess of $12,000 at the time of the hearing and $14, 459 as of May 31, 2007.