Neutral Citation: 2007 ONFSCDRS 28

FSCO A06-001263

BETWEEN:

GARY MCLELLAN

Applicant

and

AVIVA CANADA INC.

Insurer

DECISION ON EXPENSES

Before:

Arbitrator Lawrence Blackman

Heard:

Written submissions received by February 1, 2007.

Telephone conference call held February 2, 2007.

Appearances:

Mr. Paul A. Brioux for Mr. McLellan

Mr. James M. Brown for Aviva Canada Inc.

The Applicant, Gary McLellan, was injured in a December 9, 2000 motor vehicle accident. The arbitration hearing, held October 10, 11 and 12, 2006 in Kingston, dealt with Mr. McLellan's claims for statutory accident benefits under the Schedule.¹

My October 31, 2006 decision, while reserving on the issue of expenses, determined that Mr. McLellan was entitled to an additional $7,489.56 in income replacement benefits (IRBs), covering the period January 1 to June 30, 2002, in addition to the IRBs already paid by Aviva.

In addition, I found Mr. McLellan entitled to interest of two per cent per month, compounded monthly, on each consecutive bi-weekly payment of $576.12 payable for the period January 1 to June 30, 2002, from the last date of each bi-weekly period.

The issue in this further hearing is:

Which, if any, party is entitled to its expenses incurred in respect of this arbitration proceeding, and if a party is entitled to its expenses, what is the quantum?

Mr. McLellan is entitled to his expenses incurred in respect of this arbitration hearing, fixed in the amount of $2,825.55, inclusive of GST.

1. Entitlement to Legal Expenses

Subsection 12(2) of R.R.O. 1990, Regulation 664, essentially repeated in Rule 75 of the Dispute Resolution Practice Code (Fourth Edition, Updated - October 2003) (the "Code"), sets out the criteria pursuant to which an arbitrator may award part or all of the expenses incurred in respect of an arbitration proceeding. I will address each criterion in turn.

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

Both parties agreed that this arbitration hearing ended in a mixed result.

My decision ordered that the Insurer was to pay Mr. McLellan an additional $7,489.56 in IRBs. When pre-judgment interest is factored in, the arbitration award amounted to some $15,000.

Aviva submits that the Applicant was largely unsuccessful in this hearing, calculating that Mr. McLellan was claiming more than $48,000 in further benefits to the day of the hearing, plus interest. Noting that the first criterion is "degree' of success, Aviva argues that as the Applicant recovered only a fraction of what he sought, the Insurer had a larger degree of success and, hence, was entitled to its legal expenses of this proceeding.

Aviva relied on the decision in Pereira and Kingsway Geneal Insurance Company (FSCO A04-000161, April 11, 2006) where the parties were ordered to bear their own expenses, notwithstanding that Mr. Pereira received an IRB award of more than $20,000. The Insurer also relied on D.F. and Wawanesa Mutual Insurance Company (FSCO A05-000779, December 22, 2006), where Ms F was ordered to pay expenses of $15,344.05.

I find both cases distinguishable. In Pereira, a major criterion in deciding expenses was that Mr. Pereira was not credible and would say anything to advance his claim. Indeed, Directors Delegate Evans, in Kingsway General Insurance Company and Pereira (FSCO P05-00031, December 20, 2006), overturned the decision precisely because the psychological basis for entitlement could not stand in the face of the credibility finding. That is not the case before me.

In D.F. and Wawanesa, Ms F was unsuccessful on every one of her claims. Although Wawanesa was unsuccessful in its claim for repayment of certain benefits, a much larger consideration in determining legal expenses was Arbitrator Kominar's explicit finding that Ms F's conduct at the arbitration hearing unnecessarily prolonged the proceedings and his implicit finding that a seven-day hearing in that case was unnecessary and unjustified. This, again, was not the situation before me.

Meaning must be given to the words "degree of success." Meaning must also be given to all of the other expense criteria, including offers to settle.

The purpose of the expense criteria is to encourage parties to endeavour to resolve their disputes on a fair and reasonable basis, and if the matter does proceed to a hearing, to conduct themselves in a fair and reasonable manner.

To follow the Insurer's argument, an applicant would be entitled to full legal fees (within the limits set by the Code) only if one was entirely successful. If an applicant received half of the claim sought, both sides would simply bear their own costs. This would significantly lessen the need for an insurer to serve a meaningful binding offer to settle and greatly enhance the pressure for an insured to settle, even improvidently. This, in my view, would militate against both the fair and reasonable resolution of cases and the fair and reasonable advancement of proceedings.

In this case, there was no offer to settle served by either side. On the evidence before me, in order to obtain his approximately $15,000 award, Mr. McLellan had to proceed to a three-day arbitration hearing. In my view, specifically given the result, that was a reasonable decision. Further, in my view as noted below, the hearing was conducted in a fair and reasonable manner.

To use the vernacular, I find that the Expense Regulation, in this type of situation, necessitates seeing the container as half-full, rather than half-empty. Mr. McLellan has had a significant degree of success. It would, in the absence of other persuasive reasons, be an odd result if that significant degree of success was subsequently penalized in requiring one to bear one's entire legal costs, or being further penalized in having to pay part of the other side's legal costs.

(b) Any written offers to settle

There were no offers to settle.

(c) Whether novel issues were raised in the proceeding

Neither party argued that there were any novel issues raised in this proceeding.

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

The parties agreed that neither side prolonged, obstructed or hindered the proceeding. I find that the parties and their representatives facilitated an efficient, expeditious, professional and fair hearing.

(e) Whether any aspect of this proceeding was improper, vexatious or unnecessary

Aviva argued that there were two aspects of Mr. McLellan's case that were improper or unnecessary.

First, the Insurer submitted that part of the Applicant's case was unnecessary. Specifically, it argued that certain of the Applicant's evidence contradicted the facts set out in his own expert's report. Aviva submitted that the Applicant's claim for an increased base IRB was, therefore, frivolous, as having no rational basis.

I find that although Mr. McLellan was not successful in all of his alternative arguments, he was successful in obtaining an award, inclusive of interest, of approximately $15,000. The Applicant does not seek payment of his accountant's report (which was reimbursed in another forum). This report addressed but one of Mr. McLellan's accounting approaches. As well, the Applicant does not seek more than the prior Legal Aid Tier 1 hourly rate of $70.35, although an applicant's counsel can seek up to $150 an hour.

Aviva further submits that Mr. McLellan's case was advanced improperly as the Applicant had indicated, up to the eve of the arbitration hearing, his intention to call his accounting expert. However, at the start of the hearing, the Applicant advised for the first time that he would not be calling his expert, indicating he could not afford the expert's witness fee. Aviva speculates that this was the Applicant's intention throughout. There is no evidentiary basis to this submission.

The Insurer submits that in addition to being denied its basic right of cross-examination, it argues that it was unnecessarily required to prepare for cross-examination.

The pre-hearing letter herein sets out the then intention of the parties regarding witnesses (including Aviva possibly requiring the Applicant's wife attending for cross-examination). The parties agreed, at the start of the hearing, to proceed without calling Mr. McLellan's expert witness. The Insurer had the option of paying for the expert's attendance and seeking the Applicant's assistance in ensuring his availability. Aviva chose not to do so.

The Insurer also noted that the Applicant could have sought an interim award of expenses to allow for his expert to attend. This was not requested, at a cost saving to Aviva. As this expert was not called, the hearing was concluded earlier, at a further cost saving to the parties. I see this as a situation, overall, of saving the parties expenses, rather than creating unnecessary expense.

(f) Whether the insured refused or failed to submit to an examination as required under section 42 or refused or failed to provide any material required to be provided by subsection 42 (10) of the Schedule

This provision is found in subsection 12(2) of R.R.O. 1990, Regulation 664. It is not duplicated in Rule 75 of the Code. In oral submissions, I noted this amendment. There were no submissions regarding the applicability of this criterion.

(g) Result

I find, with no offer to settle before me and in the absence of persuasive reasons to the contrary, that Mr. McLellan's success in receiving an award of approximately $15,000 (including pre-judgment interest) as grounds for awarding the Applicant his legal expenses of this arbitration proceeding.

2. The Quantum of Legal Expenses

(a) Legal Fees

The Applicant sought 37.6 hours of preparation for and attendance at the three-day arbitration hearing, at $70.35 an hour, for a counsel fee of $2,645.16, plus GST of $158.71, for a total of $2,803.87.

Rule 78.1 of the Code initially provides that the maximum that may be awarded for legal fees is an amount using the hourly rates established under the Legal Aid Services Act, 1998 for professional services in civil matters before the Ontario Superior Court of Justice, subject to increase for the appropriate experience allowance.

Mr. McLellan sought the Tier 1 Legal Aid hourly rate for certificates issued on or after August 1, 2002 (rather than on or after April 1, 2003), except for the North. He did not seek, in his revised Bill of Costs or in oral submissions, any higher amount as allowed under Rule 78.1 of the Code for applicants' counsel, up to a maximum of $150 an hour. I have no hesitation in finding that at least $70.35 per hour is justified for counsel fee.

Aviva queried the 37.6 hours claimed by the Applicant for legal work. The Insurer submitted that the time sought for legal research (which was encompassed in these hours) should not be allowed as the particulars of any such work, which it questioned, had been requested, but had not been forthcoming. Aviva noted that in the main hearing Mr. McLellan had been unable to present any legal authority supporting his submission that his two sole proprietorships should be treated separately in calculating his IRB.

The general arbitration approach towards assessing expenses is set out in Henri and Allstate Insurance Company of Canada (OIC A-007954, August 8, 1997). Then Arbitrator Makepeace held that "[a] line-by-line assessment of the expenses claimed is not appropriate. Rather, the Arbitrator should make a global assessment of reasonable expenses." Arbitration decisions have held, subject to special circumstances, that the appropriate approach is a ratio of preparation time (and other services provided before a hearing) to attendance at an arbitration hearing of between 4:1 and 1:1.

The parties agreed that in this case, the total 37.6 hours claimed represented a ratio of approximately 1:1 between preparation and hearing time. I find this extremely reasonable, especially as the Insurer's Bill of Costs (totalling $8,099.56) claimed 77.1 hours for counsel time (subsequently reduced by 2.8 hours) and 15.1 hours for a paralegal, or a total of 92.2 hours. Accordingly, I allow Mr. McLellan's entire claim for counsel time.

(b) Disbursements

The Applicant claimed $21.68 for disbursements, consisting of photocopies and long distance phone calls. There was no claim for the Collins Barrow February 21, 2005 accounting report, reimbursement of same having been secured in a different forum. Aviva did not dispute the disbursements claimed, and I allow same.

(c) Result

Having allowed Mr. McLellan's entire Revised Bill of Costs, I find that Aviva shall pay the Applicant his legal expenses of this arbitration proceeding, fixed in the amount of $2,825.55, inclusive of GST.

February 12, 2007

Lawrence Blackman

Arbitrator

Date

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario