Andrew J. Punwasie v. State Farm Mutual Automobile Insurance Company, 2010 ONFSCDRS 103

Financial Services Commission des Commission services financiers of Ontario de l’Ontario

Neutral Citation: 2010 ONFSCDRS 103

FSCO A08-001332

BETWEEN:

ANDREW J. PUNWASIE

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

DECISION ON EXPENSES

Before: Arbitrator John Wilson

Heard: By telephone conference call on June 25, 2010.

Appearances: Mr. Punwasie was self-represented Jennifer Reid for State Farm Mutual Automobile Insurance Company

Issues:

The Applicant, Andrew J. Punwasie, was injured in a motor vehicle accident on October 10, 2003. In a decision dated April 14, 2009, I dealt with his claims for statutory accident benefits under the Schedule.¹ I made the following order, while reserving on the issue of expenses:

Mr. Punwasie is barred from proceeding with this arbitration, and the arbitration is dismissed.

The issue in this further hearing is:

Is either Mr. Punwasie or State Farm entitled to an order for expenses incurred in respect of this arbitration hearing?

Result:

State Farm is entitled to its reasonable expenses.

EVIDENCE AND ANALYSIS:

In both courts and arbitrations a decision-maker has a discretion to order that one party pay the other’s costs with respect to a proceeding.

In the courts, especially, there is a tradition² that costs follow the cause, or put otherwise, that the loser pay the winner’s costs, subject only to the discretion of the judge to consider a variety of other exceptions to the rule.

Such considerations include the complexity of the proceeding, the importance of the issues, the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding, whether any step in the proceeding was improper, vexatious or unnecessary, taken through negligence, mistake or excessive caution or “any other matter relevant to the question of costs.”

Costs, or expenses as they are termed at arbitration, operate under a similar framework to the courts, with the important exception that arbitrators have lost the “basket clause”³ which allowed them to consider any other matter relevant to costs.

The legislative framework for expenses at the Commission is set in section 282(11) of the Insurance Act, as modified and amplified by the Expense Regulation. The relevant portions of the Regulation are as follows:

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:
Each party’s degree of success in the outcome of the proceeding.
Any written offers to settle made in accordance with subsection (3).
Whether novel issues are raised in the proceeding.
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.
Whether any aspect of the proceeding was improper, vexatious or unnecessary.
Upon the request of the insurer or the insured person, the arbitrator shall, for the purposes of awarding expenses, take into account all written offers to settle, if any, (a) that were made after the conclusion of mediation and before the conclusion of the arbitration; and (b) that were made in accordance with the rules of practice and procedure applicable to the proceeding.
If the arbitrator is requested to take into account a written offer under subsection (3), the arbitrator shall have regard to the terms of the offer, the timing of the offer, the response to the offer and the result of the proceeding.

Mr. March on behalf of State Farm has submitted his Bill of Costs outlining his expenses claimed in this matter. It outlines some 93.7 hours billed to this file up until the completion of the preliminary issue hearing.

This is for a proceeding that Mr. March acknowledges, contained no novel issues and was so self-evident that (at least in Mr. March’s submission) Mr. Punwasie should have conceded it at the pre-hearing. The total billing claimed for the two lawyers and 4 law clerks who worked on the file was $6112.45.

Both in the courts and at arbitration, under the traditional approach to costs, costs are generally awarded to the successful party on some sort of partial indemnity basis. In arbitration the scale for the partial indemnity is based on the current legal aid tariff.

While awards for costs may have been originally meant solely to indemnify the victor, it is now recognized that costs awards may also serve other functions.

As LeBel J. noted in British Columbia (Minister of Forests) v. Okanagan Indian Band,⁴:

Costs can also be used to sanction behaviour that increases the duration and expense of litigation, or is otherwise unreasonable or vexatious. In short, it has become a routine matter for courts to employ the power to order costs as a tool in the furtherance of the efficient and orderly administration of justice.

Litigation has become an increasingly expensive undertaking. This alone can be a barrier to access to justice. The possibility of having to pay the costs incurred by the other parties can be a further powerful disincentive to litigation. While this may be appropriate where a litigant is acting in her own personal interest, it can become a problem where a litigant seeks to act in a broader interest. In the latter context, the traditional approach to costs can have a chilling effect.

The Supreme Court of Canada has acknowledged this concern in Okanagan Indian Band,⁵ and recognized that other considerations can be relevant to costs. Thus, as LeBel J. noted,

In special cases where individual litigants of limited means seek to enforce their constitutional rights, courts often exercise their discretion on costs so as to avoid the harshness that might result from adherence to the traditional principles. This helps to ensure that ordinary citizens have access to the justice system when they seek to resolve matters of consequence to the community as a whole.⁶

While access to justice is not a permissible criterion to justify an arbitration expense order under the Expense Regulation, LeBel J.’s comments above must temper the exercise of arbitral discretion in such an award.

While in this matter Mr. Punwasie was not attempting to enforce a constitutional right, he was legitimately trying to enforce the provisions of a general legislative enactment that creates a scheme whose principal object is to provide a “fair and adequate income stream to those who are injured and disabled from work.”⁷

There has never been a finding that Mr. Punwasie was not injured as a result of a motor vehicle accident, nor that his claimed disabilities do not arise from that accident. Potentially he may well have met the statutory criteria for entitlement.

It might seem strange to ask an injured insured to pay for his insurance company’s expenses in rejecting his claim, but for the significant delays in bringing Mr. Punwasie’s case forward. For a variety of reasons, Mr. Punwasie ran afoul of statutory limitations put in place by the legislature to limit untimely accident benefit claims.

Limitations on claims are an important element of our civil justice system. They serve a critical functional and policy goal in establishing increased certainty in commercial and individual relations, by allowing individual and corporate actors to deal with property without the necessity of dealing with risk of unforeseen claims against persons or property coming out of the woodwork at any time.

Limitations also address the potential prejudice to parties being forced to address a claim long after supporting documentary evidence may have been lost due to the passage of time and the recollection of potential witnesses lost or rendered unreliable.

Unfortunately, perhaps due to the actions of others, Mr. Punwasie found himself on the wrong side of a limitation period. Still he proceeded with his claim against his Insurer, and lost.

While others may have been responsible for the delays in advancing Mr. Punwasie’s case, there is no suggestion that State Farm was in any way implicated in his missing the final deadline for an application.

While, as noted earlier, the Expense Regulation underpinning expense awards in arbitration has taken away the “basket clause” - the reference to any other matters relevant to costs, the remaining criteria for an award of expenses provide a significant discretion in awarding expenses.

The concepts of degree of success, conduct, novelty of issues, and particularly abuse of process, and considerations of whether elements of the proceeding are vexatious or unnecessary are not simple considerations. Rather, they potentially cover a wide ambit of conduct, both positive and negative.

Lord Diplock commented on vexatious litigation and abuse of process as follows:

My Lords, this is a case about abuse of the process of the High Court. It concerns the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nonetheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right‑thinking people.⁸

It is of some importance that Lord Diplock identifies fairness as the foundation of the concept of abuse of process and vexatiousness⁹, and underlines the need to avoid bringing the administration of justice into disrepute among right-thinking people.

The power to order costs is discretionary, but it is a discretion that must be exercised judicially. The ordinary rules of costs should be followed unless the circumstances justify a different approach. However, a tribunal always retains the discretion not to order the losing party to pay the victor’s costs.

A court or tribunal must, first and foremost, be fair and reasonable when exercising its discretion to award costs. In the Bourcher¹⁰ decision, Armstrong J.A. stated:

In deciding what is fair and reasonable, as suggested above, the expectation of the parties concerning the quantum of a costs award is a relevant factor. See City of Toronto v. First Ontario Realty Corporation (2002). I refrain from attempting to articulate a more detailed or formulaic approach. The notions of fairness and reasonableness are embedded in the common law. Judges have been applying these notions for centuries to the factual matrix of particular cases.

As noted earlier, Mr. Punwasie was unrepresented at the expense hearing, his former counsel, Mr. Rameshwer Sangha, having withdrawn from the file subsequent to the preliminary issue hearing.

Mr. Punwasie’s submissions could be summarized briefly as:

He was in an accident and is still in pain without receiving benefits.
He did his best to pursue his claim by retaining Mr. Aaron Lang, a lawyer.
It was not his fault that Mr. Lang dropped the ball and did not proceed with the claim.
He retained Mr. Sangha to carry on with the claim, once he realized that Mr. Lang had left practice without advancing his claim. Mr. Sangha proceeded diligently.
It would be unjust to have to pay the Insurer’s costs when it refused to pay benefits.

While I cautioned Mr. Punwasie that I had already found that his claim was out of time in my preliminary issue decision, and that an expense hearing was not the time or place to revisit those findings, I accept that Mr. Punwasie’s position made a certain sense.

It does, at a certain level, seem unfair that Mr. Punwasie, having already experienced the non‑payment of benefits should be expected to pay his Insurer’s expenses in the dispute over that refusal.

Unfortunately, Mr. Punwasie, had the misfortune of trusting a solicitor who repaid his confidence by missing an important deadline in Mr. Punwasie’s claim for accident benefits. By the time his claim reached the preliminary issue stage there was little or nothing that could be done.

State Farm clearly meets a basic criterion for an award of expenses, namely success. Nor do I find that the other named criteria disentitle State Farm to an award of costs. As Mr. March pointed out in his written submission in support of expenses, their defence was neither frivolous nor vexatious.

I accept that State Farm has made a case for entitlement to an expense order in its favour.

That is not to say however that I must accept the amounts claimed by Mr. March in ordering expenses to be paid.

The expenses claimed must still be reasonable in the context of the arbitration. In this matter, however, I find that the amount claimed and the time billed by Mr. March and his colleagues are not at all reasonable in the context of this short, focussed arbitration.

In fact I find that, in the context of this simple arbitration, to award compensation for 93.7 hours of legal work would, in the words of Lord Diplock, “bring the administration of justice into disrepute among right‑thinking people”, since the hours claimed are completely disproportionate to the simple issue at stake in this preliminary issue hearing. Again, to paraphrase Lord Diplock, such an award, although not inconsistent with the literal application of the procedural rules surrounding expenses, would nonetheless be manifestly unfair to a party to the litigation.

Both State Farm and Mr. Punwasie should be commended for dealing with this dispute in an efficient manner. By agreeing to deal with the underlying issue of time-limits first, the parties avoided much wasted energy and cost. Indeed the hearing was completed essentially in one day. Any expense order should respect both the brevity of the process, and Mr. Punwasie’s co‑operation in bringing it to a dénouement on a preliminary issue.

The Expense Regulation does permit an arbitrator to order compensation for the following legal expenses:

(1) The legal fees payable by the insured person or the insurer for the following matters may be awarded:

For all services performed before an arbitration, appeal, variation or revocation hearing.
For the preparation for an arbitration, appeal, variation or revocation hearing.
For attendance at an arbitration, appeal, variation or revocation hearing.
For services subsequent to an arbitration, appeal, variation or revocation hearing.

(2) The number of hours for which legal fees may be awarded shall be determined by the arbitrator, having regard to the criteria set out in subsection 12 (2) of this Regulation.

(3) The maximum amount that may be awarded for legal fees is the amount calculated using the hourly rates set out in the Dispute Resolution Practice Code published by the Ontario Insurance Commission or Financial Services Commission of Ontario, as it may be amended from time to time.

According to the Rule 78 of the Dispute Resolution Practice Code, the default method of determining expenses is through the application of the hourly rates established under the Legal Aid Services Act, 1998 for professional services in civil matters before the Ontario Superior Court of Justice.

It is clear from the above that, normally, an expense order is not intended to provide full indemnity for a party’s legal expenses. Indeed to accept Mr. March’s full claim would amount to an abuse of the arbitration process. It would also be totally unreasonable since it would run counter to the nature of a consumer protection scheme¹¹ by unduly penalizing insured who attempt to enforce their statutory and contractual rights.

In any event, the hours billed are patently disproportionate to what a reasonable counsel might be expected to invest in time for a simple preliminary issue hearing.

The Tariff and Billing Handbook issued by Legal Aid Ontario gives some guidance as to the number of hours that are anticipated to be required for various procedures working under the Legal Aid Services Act.

Mr. March provided no support, other than his Bill of Costs and generalized submissions as to why an expense order should depart from the scheme set out under the Legal Aid Services Act, and offered no alternative method of computing the reasonableness of hours expended.

Consequently I find that, in this matter, the best guidance is that provided under the Legal Aid Services Act.

Under Table C: Civil Litigation, published by Legal Aid Ontario, the tariff lists some 2.5 hours maximum for “[p]reliminary interviews, advising and receiving instruction for the commencement or defence of an action or application before the court or before a quasi-judicial or administrative board or commission, including preparation or originating process”.

It also sets out a maximum of some 4.5 hours for “[a]ll services, including preparation of notice of motion or notice of appeal and affidavits, preparation for hearing, and settling and signing the order,” while attendance is at the actual time spent at the hearing.

Applying these guidelines, Mr. March would be able to bill legal aid at most 7 hours for preparatory work, including taking instructions from his client, creating and filing a response, dealing with productions and preparing for the pre-hearing and hearing.

Attendance at the pre-hearing and hearing would be at best another 6 hours, for a total of 13 billable hours at the appropriate legal aid rate.

If all of these hours were billed at Mr. March’s legal aid rate of $96.60 per hour, the total billable amount would be $1255.80 plus the appropriate taxes, in this case the H.S.T. which would calculate out at $163.25, for a total of $1419.05, which amount shall be payable by Mr. Punwasie.

Although this amount may be beyond the expectations of Mr. Punwasie, I find that it reflects a fair balancing of compensation for the efficient utilization of time in an arbitration process, while maintaining the integrity of the arbitration process and its provisions for awards of expenses.

August 19, 2010

John Wilson Arbitrator

Date