Neutral Citation: 2009 ONFSCDRS 171 FSCO A07-002068

BETWEEN:

MANOKAR ARUNASALAM Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY Insurer

DECISION ON EXPENSES

Before: Jeffrey Rogers Heard: By written submissions completed on November 2, 2009 Appearances: Mr. David S. Wilson, solicitor for Mr. Arunasalam Mr. Robert S. Franklin, solicitor for State Farm Mutual Automobile Insurance Company

Issues:

The issue in this expense hearing is:

What is the amount of expenses to which Mr. Arunasalam is entitled in respect of this arbitration?

Result:

Mr. Arunasalam is entitled to expenses of $40,623.08, inclusive of GST.

Background

In a decision dated June 25, 2009, I dealt with Mr. Arunasalam’s claims for statutory accident benefits under the Schedule.¹ Mr. Arunasalam claimed Income Replacement Benefits (IRBs) from July 25, 2007 to August 30, 2008. I ordered State Farm to pay IRBs from July 25, 2007 to March 31, 2008, plus interest pursuant to section 46(2) of the Schedule. I reserved my decision on the issue of expenses. Claims for housekeeping and home maintenance benefits, assessments and medical and rehabilitation benefits that were set to be part of the arbitration, were resolved by agreement during the course of the hearing.

Mr. Arunasalam now claims expenses totalling $74,682.46, comprised of $52,723.13 for legal fees, plus disbursements of $21,959.33. State Farm concedes that Mr. Arunasalam is entitled to his expenses of the arbitration. State Farm does not dispute entitlement to disbursements as claimed and entitlement to legal fees at the claimed hourly rate of $150. State Farm disputes the amount claimed for legal fees and submits that $16,200 is the appropriate amount.

EVIDENCE AND ANALYSIS:

The overriding consideration in fixing arbitration expenses is reasonableness. A line-by-line analysis of dockets is not appropriate. Rather, the Arbitrator should make a global assessment of reasonable expenses. Assessing preparation time on a ratio with hearing attendance provides a framework for estimating reasonable preparation time. This approach is established by a long line of Commission decisions, often traced to the decision in Henri and Allstate Insurance Company of Canada.² The applicable ratio is not static. A reasonable ratio is informed by the particulars of the case, including the amount of the claim, the complexity of the issues, the conduct of the parties that tended to either prolong or shorten the proceedings and their degree of success.

When the hearing started, the issues in the arbitration were:

IRBs of $394.54 per week, for 58 weeks, from July 25, 2007 to August 30, 2008;
Housekeeping and home maintenance benefits of $100 per week, for about 62 weeks, from July 1, 2007 to August 30, 2008;
Medical benefits of about $7,325;
Examinations of about $4,780;

The total amount in dispute was about $41,200, plus interest.

Section 12(2) of the Expense Regulation sets out the criteria an Arbitrator must consider in determining entitlement to expenses. Section 3(2) of the Schedule to the Expense Regulation requires an Arbitrator to also consider the same criteria in determining the number of hours for which legal fees are to be awarded. Relevant to the determination in this arbitration are the first and fourth criterion listed in Section 12(2): “Each party’s degree of success in the outcome of the proceeding” and “[T]he conduct of a party or a party’s representative that tended to prolong, obstruct or hinder the proceedings, including a failure to comply with undertakings and orders.”

Degree of Success

Mr. Arunasalam was substantially successful on the only issue that proceeded to hearing. The other issues were settled. Each party in its submissions invited me to decide who achieved greater success in the settlement. I decline to do so. I accept the logic expressed by the Arbitrator in Thevasagayam and Security National Insurance Company/Monnex Insurance Mgmt. Inc.³ that, where parties settle a dispute, because of the many reasons influencing the decision to settle, it is unrealistic to assess the degree of success in hindsight. State Farm agreed to pay the expenses of the arbitration. I find that, because of Mr. Arunasalam’s substantial success on the only issue that proceeded to hearing and State Farm’s agreement to pay his expenses, he is entitled to his reasonable expenses of the arbitration, without consideration of his degree of success on the settled issues.

Conduct of the Parties

The hearing started on June 23, 2008, with Mr. Wilson as counsel for Mr. Arunasalam. It was adjourned at State Farm’s request and continued on December 15, 2008 and January 5, 6, 7, 8, 15 and March 27, 2009. Because Mr. Wilson was not available in January and Mr. Arunasalam wanted to proceed as soon as possible, Mr. Zigler was retained for the dates after June 23, 2008. In addition to the time spent in the hearing room, there were two telephone conference calls in which Mr. Wilson participated on June 24 and 25, 2008 and three in which Mr. Zigler participated on December 16, 2008. After the oral hearing, I received written submissions.

The circumstances under which the hearing was adjourned on June 23, 2008 suggest that a ratio for preparation time on the low end of the scale is appropriate. The hearing was scheduled to be completed in June 2008. It was adjourned at the insurer’s request because the notes and records of Dr. Garber, who Mr. Arunasalam had retained to provide a medico-legal opinion, had not been produced. The pre-hearing Arbitrator had ordered that these notes be produced but Dr. Garber refused to produce them to counsel for State Farm, reportedly claiming that his professional obligations precluded that.

Although the pre-hearing Arbitrator had ordered his client to produce the records to State Farm, counsel for Mr. Arunasalam defended Dr. Garber’s refusal to do so. Counsel had taken no steps to change Dr. Garber’s unfounded opinion. That conduct raised the possibility that Mr. Arunasalam was complicit in Dr. Garber’s decision. Mr. Arunasalam had taken a similar, intransigent position when State Farm brought a motion for a third party production order for documents he had undertaken to produce. As the pre-hearing Arbitrator noted in his letter of June 9, 2008, after “initially stating that he would be taking no position on the motion for third party productions, [counsel for Mr. Arunasalam] showed up at the motion to object to their production...”

Even if Mr. Arunasalam was not party to Dr. Garber’s refusal, there was no basis for Mr. Arunasalam’s initial refusal to provide the records. Had he not done so, thereby requiring State Farm to seek an order from the pre-hearing Arbitrator, Dr. Garber’s position would have been known earlier and the adjournment might have been avoided.

The adjournment of the hearing made it necessary to retain Mr. Zigler who was not familiar with the case and would necessarily have duplicated work that Mr. Wilson had already done in preparation for proceeding in June 2008. The delay also made it necessary to address the question of whether entitlement to post-104 benefits would be included in hearing and that issue consumed considerable time, before the parties agreed on a process for its resolution.

On the other hand, two further facts support applying a ratio on the high end of the scale. First, the proceeding was unduly complicated and lengthened by State Farm’s dogged, unsuccessful pursuit of the idea that Mr. Arunasalam fabricated information about his employment on the date of the accident. Second, had the parties not settled all of the issues except IRBs, the hearing would have been longer.

Reasonable Fees

Counsel docketed 39.5 hours of hearing time. That time does not include submissions, but it includes preparation and travel time. The inclusion of preparation and travel time compensates for the fact that a reasonable time for submissions was not included in the docketed hearing time. I will therefore use 39.5 hours as the length of the hearing, including submissions.

Mr. Wilson docketed 6 hours for his appearance on June 23, 2008 and about 1.1 hours for his telephone conference calls on June 24 and 25, 2008. He docketed a further 219.2 hours, or about eight 40-hour work weeks. Mr. Zigler docketed a total of 108.5 hours, including 24.55 hours for preparation and review of written submissions. These numbers appear excessive, by any standard. The ratio of preparation time to hearing time is about 7.7 to 1. Even at the modest hourly rate recoverable under the Dispute Resolution Practice Code, the amount claimed for fees significantly exceeds the principal amount in dispute.

Mr. Arunasalam nevertheless submits that there is no basis for reducing the amount claimed for fees because counsel for State Farm did not produce his dockets. He relies on the decision in Hutchinson and Security National Insurance Company/Monnex Insurance Mgmt. Inc.⁴ In that case, the Arbitrator ruled as follows: “...I find it inappropriate in this case for Mr. Harvey to seek to attack the reasonableness of Mr. Wilson’s dockets, without being prepared to make similar disclosure himself.”⁵ In taking that approach, the Arbitrator relied on the decision of the Divisional Court in United States of America v. Yemec et al.⁶

After it was well established at the Commission, the Courts adopted the principle that the overriding consideration in fixing costs is reasonableness. In Yemec, the Court traced this approach to the statement of the Court of Appeal in Zesta Engineering Ltd. v. Cloutier⁷ that “...the cost award should reflect more what the court views as a fair and reasonable amount that should be paid by the unsuccessful parties rather than any exact measure of the actual costs to the successful litigant.” The Court noted that this principle is now incorporated into Rule 57 of the Rules of Civil Procedure. The Court cited with approval the principle that, one of several factors to be considered in assessing reasonableness of an account, is whether opposing counsel provided dockets. In their absence, the judge is permitted to make the inference that the opposing party devoted as much or more time. The Court pointed out that the absence of opposing dockets is not determinative, noting as follows:

The appellants did not submit their own bills of costs. Consequently, as pointed out in Risorto v. State Farm Mutual Automobile Insurance Co. (2003), 2003 CanLII 43566 (ON SC), 64 O.R. (3d) 135, [2003] O.J. No. 990 (S.C.J.), an attack on the quantum of costs based on excess in circumstances where the court does not have before it the bills of all counsel “is no more than an attack in the air”. In such case, the court can rightly make the inference that the appellants devoted as much or more time and money in an attempt to contest the motion (see Andersen v. St. Jude Medical, Inc., supra, at para. 27). But, as Lax J. also points out in the same paragraph, it can only be some measure of what was expected. It still cannot be determinative, especially where both sides conduct themselves excessively, as was the case in Andersen v. St. Jude Medical, Inc., supra

Although the appellants did not submit its bill of costs, the Court concluded that the amount that the judge had awarded was not reasonable and reduced the award to one respondent by 40 percent and to the other by 20 percent.

I am not satisfied in this case that the absence of the dockets of counsel for State Farm leads to the inference that the time claimed by Mr. Arunasalam is reasonable. In these circumstances, where both parties contributed to prolonging the process, but the hearing itself was shortened because the parties agreed to settle some of the issues, I find a ratio of 3:1 to be reasonable.

Preparation time includes correspondence. No separate award is warranted for the 104 hours claimed for sending and receiving letters.

Applying that ratio, Mr. Arunasalam is entitled to 39.5 x 3 x $150 for legal fees, plus 5% GST. His total entitlement is $18,663.75 for fees, plus $21,959.33 for disbursements.

EXPENSES

Mr. Arunasalam claims his expenses of this assessment. Given the significant reduction in the amount he claimed for fees, his degree of success does not warrant an award of expenses in his favour.

December 11, 2009

Jeffrey Rogers Arbitrator

Date

Financial Services Commission of Ontario