Neutral Citation: 2014 ONFSCDRS 84

FSCO A11-002437 and A11-002549

BETWEEN:

TAWAB HABIB SHAH Applicant

and

PERSONAL INSURANCE COMPANY OF CANADA Insurer

DECISION ON EXPENSES

Before: Richard Feldman Heard: Written submissions received by April 11, 2014 Appearances: Gary Mazin for the Applicant Thomas Hughes for the Insurer

Background:

The Applicant, Tawab Habib Shah, made numerous claims against the Insurer, Personal Insurance Company of Canada, arising from accidents that occurred on November 12, 2009 and November 26, 2009. The disputed issues proceeded to arbitration and were heard by me on September 9, 10, 11 and 12, 2013. On December 12, 2013, I issued my written decision with reasons, dismissing all of the Applicant’s claims and I reserved my decision on the issue of the expenses of the arbitration proceeding.

Subsequently, counsel for the Insurer requested an expense hearing. I proposed that this remaining issue be dealt with through written submissions and a timetable was established for each party to deliver such submissions. Neither party objected to this proposal. Due to complications,¹ the initial timetable had to be revised a couple of times but, by April 11, 2014, I had received all written submissions the parties wished me to consider.

Issues:

The issue in this hearing is:

Is the Applicant liable to pay the Insurer's expenses in respect of the arbitration proceeding under section 282(11) of the Insurance Act?

Result:

The Applicant is liable to pay to the Insurer its expenses in respect of the arbitration proceeding, fixed in the amount of $12,000.00 (inclusive of fees, disbursements and any applicable taxes).

EVIDENCE AND ANALYSIS:

Expenses up to September 12, 2013

Introduction

The Insurer is seeking expenses in the total amount of $28,473.72, made up as follows: $18,795.81 in fees (representing about 165 hours of legal services) and $9,677.91 in disbursements.

The Applicant seems to be taking three alternative positions:

The Insurer ought to be awarded no expenses at all because of its disclosure of settlement documents related to the issue of expenses;
If the Insurer is to be awarded any expenses, the amount should be consistent with the amounts discussed by the parties during their settlement negotiations; or, in the further alternative,
If the Insurer is to be awarded any expenses and in an amount different from the amount contained in the offers to settle, the Applicant asks me to award an amount that I deem appropriate and submits that many of the amounts claimed by the Insurer are excessive, impermissible under the Expense Regulation and/or unsupported by documentation (such as detailed invoices).

Disclosure of Details of Settlement Negotiations

On January 7, 2014, Mr. Hughes, counsel for the Insurer, wrote to the Financial Services Commission of Ontario (“FSCO”) to request an expense hearing. Apparently, he enclosed with that letter a copy of an offer to settle the expense issue sent on December 31, 2013 from Mr. Hughes on behalf of the Insurer to Gary Mazin, counsel for the Applicant.

On January 20, 2014, Mr. Mazin wrote to me to request an extension of time in which to make written submissions in order to permit the parties some additional time in which to attempt to negotiate a settlement of this issue and avoid the necessity of a hearing on the issue of expenses. Mr. Mazin advised that the parties had agreed in principle on the amount of the expenses payable by the Applicant to the Insurer but had not yet been able to agree on the timeframe for payment of these expenses by the Applicant. In that letter, Mr. Mazin also indicated that he thought it to be “improper and highly prejudicial to the Applicant” for Mr. Hughes to have disclosed to me, at that point in time, details of settlement negotiations on the issue of expenses.

At the time I received the January 20, 2014 letter from Mr. Mazin, I had not yet read the December 31, 2013 offer from the Insurer and I instructed staff to return that letter to Mr. Hughes. On January 21, 2014, I wrote to Mr. Mazin and to Mr. Hughes to advise that I was granting the Applicant’s request for additional time and explaining why I was returning to Mr. Hughes any correspondence containing information related to settlement negotiations concerning the issue of expenses. I hoped that this would address the concerns of Mr. Mazin regarding the disclosure by Mr. Hughes of the details of settlement negotiations related to the issue of expenses.

When Mr. Hughes then filed his initial written submissions on the issue of expenses, he once again filed a copy of the December 31, 2013 offer as well as a copy of the letter of January 8, 2014 from Mr. Mazin (which also contained, amongst other information, details of settlement negotiations). Not surprisingly, Mr. Mazin renewed his objection to the disclosure of such material at this stage of the proceeding, especially given Mr. Mazin’s previous written objection and my letter of January 21, 2014.

Mr. Hughes’ did not address this issue in his reply material. In fact, Mr. Hughes did not respond to Mr. Mazin’s concerns until I specifically directed him to do so. According to Mr. Hughes, his reasons for including documents disclosing details of settlement negotiations related to the issue of expenses are as follows: (1) it was necessary for the Insurer to establish that the parties had not in fact settled that issue in order to demonstrate that the Insurer was entitled to an expense hearing; (2) the Dispute Resolution Practice Code is either silent or ambiguous on whether this is permissible; and (3) although I had such documentation returned (unread) to Mr. Hughes in January 2014, I did not in my letter explicitly forbid Mr. Hughes from filing such documentation in the future.

I do not accept that any of these explanations are reasonable.

It would have been sufficient for Mr. Hughes to simply advise that the parties had been unable to settle the issue of expenses and to request an expense hearing. Should the Applicant have taken the position that there was a binding settlement on the issue of expenses, then there would have to have been a hearing of that issue (i.e., to determine whether or not there was a binding settlement of the expense issue). ² When Mr. Hughes initially wrote to FSCO in January 2014 to request an expense hearing, there was no need for him to include any documentation related to settlement negotiations concerning the issue of expenses.

Even if, however, Mr. Hughes originally believed that it was appropriate to include such details, he ought to have been disabused of that belief after having received correspondence from Mr. Mazin raising legitimate concerns about such disclosure and then having had the offending document returned to him by FSCO (pursuant to my instructions). If Mr. Hughes was in any doubt (as he should have been) as to the appropriateness of re-submitting such documentation during the course of the written expense hearing, he could simply have asked for direction from me prior to filing such documents. Alternatively, he could have filed those documents in a sealed envelope, and asked for a ruling on the issue of the admissibility, at this stage of the expense hearing, of those documents (or the parts thereof relating to settlement negotiations related to the expense issue). He took neither precaution.

In the absence of consent of the parties or very unusual circumstances, fairness requires that details of settlement negotiations ought not to be disclosed to an adjudicator who has yet to determine the very issue that is the subject matter of the settlement negotiations. I therefore find that it was inappropriate for the Insurer to have filed such documentation.

Nevertheless, I am not satisfied that the appropriate remedy is to preclude the Insurer from recovering any of its legal expenses related to the proceedings that occurred well before this transgression. I also see no reason to restrict the Insurer to amounts that may have been discussed during settlement negotiations. The quantum of expenses that I award herein, if any, may be higher or lower than amounts discussed by the parties during their settlement negotiations and I intend to proceed as if no details of those settlement discussions had been disclosed. I will, however, consider this inappropriate disclosure later, when dealing with the issue of the claim by both parties for their respective expenses of the expense hearing itself.

Relevant Criteria under the Expense Regulation

Of the seven criteria that I am required to consider according to the Expense Regulation, there is no suggestion by the Insurer that the Applicant refused or failed to submit to an examination required under the applicable Statutory Accident Benefits Schedule. There is also no suggestion by the Insurer that any aspect of the proceeding was improper, vexatious or unnecessary. The parties do not agree on the applicability or weight to be given to the remaining criteria.

In this case, the most important of those remaining criteria is undoubtedly the relative success of the parties (i.e., each party's degree of success in the outcome of the proceeding). The Insurer was completely successful and the Applicant was completely unsuccessful.

With respect to written offers to settle (another of the listed criteria), there was only one offer made that complies with Rule 76. The Applicant made an offer to accept $8,500.00 plus expenses on August 28, 2013. Given the result of this proceeding (i.e., the Applicant was completely unsuccessful), it appears to me reasonable for the Insurer to have rejected this offer. Nevertheless, I cannot see any rationale for penalizing the Applicant for having made an offer any more than the Insurer ought to be penalized for having failed to make any offer that complied with Rule 76.

With respect to the criterion related to novel issues, I am not persuaded that there were any novel issues raised by the Applicant. The mere fact that the Applicant had two accidents relatively close together in time did not raise any novel factual or legal issues.

With respect to the conduct of the parties and their representatives up to the conclusion of the hearing that tended to prolong, obstruct or hinder the proceeding, I note that the Applicant failed to provide a list of witnesses he actually intended to call at least 30 days prior to the hearing (as required by the Dispute Resolution Practice Code) and failed to disclose important and relevant documentation concerning his employment and income until shortly before commencement of the hearing. While this conduct may not have prolonged the hearing, it did tend to obstruct or hinder the proceeding (by making it harder for the Insurer to know the case it had to meet) and it is a factor I will take into account when considering the Insurer's claim for expenses. With respect to the excessive number of documents tendered, both parties were equally culpable in this regard; however, I rejected this “everything including the kitchen sink” approach and only accepted into evidence relevant documents as they were referred to during the hearing. As a result, the number of documents actually entered into the record were significantly less than the number originally tendered by both parties and the failure of the parties to turn their minds to this issue prior to the hearing did not, in the end, tend to prolong, obstruct or hinder the proceeding.

Entitlement to Expenses - Conclusion

For all of the foregoing reasons, I find that the Insurer is entitled to its expenses of the arbitration proceeding (up to September 12, 2013, the last day of the hearing).

Quantum

Fees

The hearing took four days. I heard testimony from the Applicant, his sister, Dr. Tavares and from three experts called by the Insurer (Dr. Fielden, Dr. Kaufman and Ms. Vuckovic) and I received 36 documents (one binder).

This was neither the most complex nor the simplest of cases. In the end, it was a case that turned largely upon the credibility of the Applicant and the presence or absence of reliable corroborating evidence.

The Insurer is seeking expenses related to a total of about 165 hours of legal services (about 140 hours by Mr. Hughes, about 4 hours by Mr. Zarek and about 21 hours by a law clerk). The Applicant's counsel has criticized this as being unreasonable and excessive but I note that Mr. Mazin has not disclosed the total number of hours docketed by his firm on these proceedings.

With respect to preparatory work prior to the hearing, given the nature of the issues in dispute and the conduct (previously described) on the part of the Applicant or his representatives that tended to hinder this proceeding, I find that a ratio of about 2:1 (the ratio of preparation time to hearing time) is appropriate. I find that a reasonable number of total hours for legal services in this case would be about 90. The vast majority of this would relate to work done by Mr. Hughes. At the appropriate Legal Aid rates, this would be equivalent to legal fees of about $9,500.00 (not including HST).

Disbursements

The Insurer is seeking reimbursement for the following disbursements:

Description	Amount ($)
Courier Fees	296.11
Facsimiles	17.75
Online research	46.18
Outside printing	456.50
Photocopying	17.67
Conduct money	150.00
Process Serving / Filing Fee	391.00
Fees Paid to Expert Witnesses	3,562.50
Court Reporter	1,740.20
FSCO Arbitration Filing Fee	3,000.00
Total	9,677.91

A party to an arbitration proceeding at FSCO is only permitted to seek compensation for expenses of a type and in an amount permitted under the Expense Regulation.

The Applicant takes issue with the disbursements claimed by the Insurer because they are unsupported by any documentation such as invoices, receipts or cancelled cheques (as contemplated by Rule 79.2(c) of the Dispute Resolution Practice Code). The Insurer could have provided such supporting documentation in its initial written submission or in its reply submissions. It failed to do so.

The Applicant also takes issue specifically with the claim for $3,562.50 for the Insurer's expert witnesses as there is no documentation to show how much (if anything) of this is related to fees for attendance at the hearing, how much (if anything) for preparation for the hearing and how much (if anything) for preparation of reports. The Insurer has not even documented to which expert or experts this expense relates. Again, the Insurer could have provided such supporting documentation either in its initial written submission or in its reply submissions but it failed to file any supporting documentation with respect to these alleged disbursements. Without this information, it is impossible to know: the exact nature of the expenses being claimed; whether the amounts claimed are within the maximum limits permitted under the Expense Regulation;³ and, whether these expenses are related to the experts whose evidence forms part of the record (as opposed, for example, to the cost of reports that were not accepted into evidence at the hearing or the cost of preparing witnesses who did not actually testify at the hearing). In the absence of any particulars or supporting documentation from the Insurer, I am not prepared to permit any amount for the alleged cost of expert witnesses.

With respect to the cost ($1,740.20) of having a verbatim reporter attend the hearing, it is not an expense that is specifically permitted under the Expense Regulation and there is case law from FSCO to the effect that such expenses generally cannot be claimed as a disbursement.⁴ I will not allow this claim.

With respect to the $3,000.00 filing fee, until recently, this type of expense was not recoverable by an insurer under the Expense Regulation. A recent amendment to O. Reg. 664, R.R.O. 1990 (i.e., the addition of section 7 to the Schedule of that Regulation) now allows an insurer to seek reimbursement of such an expense in very limited circumstances. The Insurer has neither alleged that the requisite circumstances exist in this case nor adduced any evidence to support such a conclusion. As a result, this expense will not be allowed.

As for the disbursements related to courier fees, facsimiles, online research, outside printing, photocopying, conduct money and process serving, these are all types of disbursements that can be permitted under the Expense Regulation and, given the nature and quantum of these claims, I am prepared to accept these expenses without further supporting documentation. I will therefore permit these disbursements (a total of approximately $1,375.00).

Thus, of the disbursements claimed on behalf of the Insurer, based on the written submissions of the parties and the supporting documents filed, I find that a total of about $1,375.00 would be reasonably permitted under the Expense Regulation.

Total Expenses (up to the conclusion of the hearing)

Having considered the relative complexity of this matter, the time spent, the applicable Legal Aid rates, the written submissions of the parties, the supporting documentation filed and the maximum amounts permitted under the Expense Regulation, I find it appropriate to fix the Insurer's expenses at $12,000.00, inclusive of all fees, disbursements and any applicable taxes.

Expenses of the Expense Hearing

The Insurer has requested its expenses related to this expense hearing. It has not indicated the amount it is seeking. It submits that this is reasonable, amongst other reasons, because of the failure of the Applicant to accept a reasonable offer from the Insurer with respect to the issue of expenses.

The Applicant has requested its expenses related to the time devoted to the issue of the premature disclosure by Mr. Hughes of details of settlement negotiations concerning the issue of expenses. The Applicant seeks such an order against Mr. Hughes personally; the Applicant has not quantified this claim.

Awards of expenses related to the expense hearing are not unheard of at FSCO but they are also far from routine. When granted, they are also typically quite modest, especially where the hearing has been conducted by way of brief written submissions. Under normal circumstances, I might have been inclined to grant some modest amount to the Insurer given its success on this expense hearing and the fact that, in light of the expenses I am awarding, the Insurer's offer in December 2013 (to accept $7,000.00 in settlement of its claim for expenses) was obviously a reasonable one that the Applicant ought to have accepted.

On the other hand, as previously explained in these reasons, I agree with the submissions on behalf of the Applicant that Mr. Hughes ought not to have disclosed details of settlement negotiations concerning the issue of expenses prior to a determination of that issue. This resulted in unnecessary legal expense to the Applicant.

In the circumstances of this case, I find that the claims of both parties for legal expenses related to the expense hearing tend to offset each other and, therefore, I have decided that each party shall bear that party’s own expenses of this expense hearing.

CONCLUSION:

For the reasons set out above the Applicant shall be ordered to pay to the Insurer its expenses in respect of this arbitration proceeding, fixed in the amount of $12,000.00 (inclusive of fees, disbursements and any applicable taxes).

May 26, 2014

Richard Feldman Arbitrator

Financial Services Commission of Ontario