Neutral Citation: 2009 ONFSCDRS 87 FSCO A07-001978

Between: Nafisa Malik, Applicant and Economical Mutual Insurance Company, Insurer

Decision on Expenses

Before: William J. Renahan Heard: May 15, 2009, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances: Nancy Ng for Mrs. Malik Helen Friedman for Economical Mutual Insurance Company

Issues:

The Applicant, Nafisa Malik, was injured in a motor vehicle accident on June 21, 2006. The parties settled all issues in dispute except entitlement to and amount of expenses of the arbitration proceeding.

The issue in this further hearing is:

Is either party entitled to expenses of the arbitration proceeding, and if so, in what amount?

Result:

Each party shall bear their own expenses.

Evidence and Analysis:

At the pre-hearing on February 25, 2008, the parties identified the issues in dispute as follows:

What is the amount of weekly income replacement benefit that Mrs. Malik is entitled to receive pursuant to section 6 of the Schedule?
Is Mrs. Malik entitled to attendant care benefits pursuant to section 16 of the Schedule?
Is Mrs. Malik entitled to payments for housekeeping and home maintenance services, pursuant to section 22 of the Schedule?
Is Economical liable to pay a special award pursuant to subsection 282(10) of the Insurance Act?
Is either party entitled to expenses of the arbitration proceeding?

On April 15, 2009, Mrs. Malik purported to withdraw the issue of a special award, although I did not find that an arbitrator permitted her to withdraw the issue as required by Rule 70 of the Dispute Resolution Practice Code (Fourth Edition). On December 4, 2008, the parties participated in a settlement discussion by teleconference with the assistance of an arbitrator and settled the issues in dispute by the payment by Economical of $5,350 to Mrs. Malik. This represented $42.30 per week for income replacement benefits to the 104-week mark, in the total amount of $3,000, $790 for attendant care and $1,560 for housekeeping. In exchange, Mrs. Malik released her claims for housekeeping, attendant care and income replacement benefits to the two-year mark. Economical also agreed to pay income replacement benefits at the minimum statutory rate of $185 per week from the two-year mark, June 21, 2008. I emphasize that entitlement to the income replacement benefit was not in issue for the hearing, only the amount.

In the ensuing correspondence the parties disagreed as to whether Economical had given up its right to seek expenses. Nicholaus de Koning participated in the settlement discussion and I accept his testimony at this hearing that he made it clear that Economical was seeking expenses.

The criteria I should consider in determining entitlement to expenses of the arbitration proceeding are set out in section 12 of Ontario Regulation 664, R.R.O. 1990, as amended. I consider each of the five criteria in order.

Each party’s degree of success in the outcome of the proceeding.

In Thevasagayam and Security National Insurance Company¹, I considered expenses where parties have resolved the other issues in dispute. I wrote:

It is difficult to assess each party’s degree of success where they have resolved all other issues for a number of reasons. Parties enter settlements voluntarily because each party assesses that it is in their best interests to enter the settlement. In some cases it appears contrary to the definition of settlement to say that one party won and the other lost. In Anishinaabe Child and Family Services, Inc. v. Canadian Broadcasting Corporation² the Court stated that where parties reach a settlement as between themselves, the court should be very slow to make an award of costs against one of the parties unless there are compelling reasons.

One reason parties resolve claims is to avoid a hearing on the merits. To then ask an arbitrator to consider the merits in order to determine who achieved the best result is again contrary to the notion of a settlement. By settling, it should be unnecessary to determine the parties’ rights on the merits. In McClellan v. Powassan Lumber Company³ the Court was asked to award costs in a property dispute between neighbours concerning water rights after both neighbours had sold their properties to a common purchaser.

Middleton J. wrote:

The parties by their action in selling the property have made it entirely unnecessary that the rights in the litigation should ever be determined. Costs are in truth incident to a determination of the rights of the parties, and ought not to be made themselves the subject matter of the litigation. When the merits for any reason cannot be determined, there ought not to be a pretended investigation of the merits for the purpose of awarding costs.

Middleton J. noted that this was not a refusal to adjudicate upon the issue of entitlement to costs, but an exercise of “judicial discretion.”

Another reason it is difficult to assess the merits of a settlement is that the parties may settle for economic reasons unrelated to the merits of the case. An insurer may offer a settlement because it is less expensive than successfully defending an application after its legal expenses are taken into account. Similarly, an insured may accept a settlement, which is less than the full value of his claim, because it is more cost effective to accept the settlement than pay his lawyer the costs of successfully prosecuting his claim at a hearing.

On the other hand, parties incur expenses in the prosecution and defence of an application for arbitration and expenses are an issue which requires determination. In Frankel v. Manitou Corp.⁴ Ground J. analysed the details of the settlement and of the claims made and the various offers of settlement to determine that the applicant had achieved a substantial degree of success and was entitled to costs.

In this case, the parties made submissions concerning the strengths of their respective cases and the reasons it settled. Mrs. Malik succeeded in recovering benefits. Economical argued that it would have paid income replacement benefits earlier if Mrs. Malik had produced documents she agreed to produce to enable Economical to calculate the amount of her income replacement benefit. I note that Economical agreed to pay the minimum statutory income replacement benefit of $185 per week at the two-year mark on June 21, 2008. However, it did not pay these benefits until the settlement in December 2008, five months later. Economical argued that it settled on an economic basis.

I find that success was mixed. I cannot say that one party was more successful than the other.

Any written offers to settle made in accordance with subsection (3).

The parties did not advise me of any offers to settle.

Whether novel issues are raised in the proceeding.

No novel issues were raised.

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.

I consider this criteria together with criteria 5.

Whether any aspect of the proceeding was improper, vexatious or unnecessary.

Ms. Friedman argued that the applicant agreed at the pre-hearing to produce documents to establish her income in the 52 weeks before the accident, but never did produce those documents. She produced her income tax assessments, and although Economical was not satisfied that Mrs. Malik earned her income evenly over the year, the tax returns were used to pro rate her income on the assumption that her income was earned evenly over the year. Ms. Friedman also argued that Economical was paying housekeeping benefits when Mrs. Malik applied for arbitration for housekeeping benefits and that Economical paid attendant care benefits in accordance with the reports Mrs. Malik submitted. Ms. Friedman argued that the proceeding was unnecessary and could have been avoided if Mrs. Malik had submitted documents to establish her income in the 52 weeks before the accident.

On one hand, Mrs. Malik did not supply documents which would allow Economical to accurately determine the amount of her income replacement benefit. On the other hand, Economical used the documents Mrs. Malik did produce and made a reasonable assumption to determine the amount of the income replacement benefit.

The parties may have avoided this proceeding if they had both acted reasonably from the outset.

Having regard to the five criteria, I exercise my discretion in ordering that each party bear their own expenses of the arbitration proceeding.

Amount of Expenses:

Mrs. Malik’s counsel submitted total expenses of $10,994.59 which included $10,250.80 for fees for about 125 hours. The list of services rendered does not identify when the service was rendered which makes it difficult to determine the accuracy and reliability of the hours claimed. As well, the charge of $150 per hour for services of Gary Mazin is not supported by any evidence to justify an increase in the hourly rate.

Ms. Friedman’s total hours is about 33 hours.

In Ibrahim v. Kadhim⁵, Tullock J. considered the amount of costs to award following the successful appeal of a Small Claims Court decision in which the central issue was whether the trial judge’s remarks that the appellants’ were “incriminating” themselves denied the appellants’ right to a fair trial. He wrote:

There must be practical and reasonable limits to the amount awarded for costs and those amounts should bear some reasonable connection to the amount that should reasonably have been contemplated. This matter was an appeal from a Small Claims Court trial in which the maximum permissible damages is $10,000 and costs are generally less than $1,000.

The objective of a costs order is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful party.

He fixed costs at $3,000 inclusive of GST and disbursements. I agree that the costs of a proceeding should have some reasonable connection to the amount the claiming party might reasonably expect to recover.

Having regard to the issues in dispute and the terms of the settlement, if I was to award expenses, I would assess expenses at $1,100, inclusive of GST and disbursements for each party.

June 26, 2009

William J. Renahan Arbitrator

Arbitration Order

Under section 282 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

Each party shall bear its own expenses of this arbitration proceeding.