Shem Whittaker v. Aviva Canada Inc., 2017 ONFSCDRS 155

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2017 ONFSCDRS 155

Appeal P16-00065

OFFICE OF THE DIRECTOR OF ARBITRATIONS

SHEM WHITTAKER Appellant

and

AVIVA CANADA INC. Respondent

BEFORE: David Evans

REPRESENTATIVES: Kwaku Bona for Mr. Whittaker Candace Mak for Aviva Canada Inc.

HEARING DATE: On the record, by submissions received by January 26, 2017

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990 c. I.8 as it read immediately before being amended by Schedule 3 to the Fighting Fraud and Reducing Automobile Insurance Rates Act, 2014, and Regulation 664, R.R.O. 1990, as amended, it is ordered that:

1. The Arbitrator’s Order of July 27, 2016 is confirmed and this appeal is dismissed.

2. If the parties are unable to agree about the legal expenses of this appeal, an expense hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.

June 5, 2017

David Evans Director’s Delegate Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

In a decision dated July 27, 2016, Arbitrator Shapiro in a written hearing dismissed Mr. Whittaker’s claim for an income replacement benefit under the 2010 SABS.¹ He found that Mr. Whittaker had not produced or filed income tax returns for his pre-accident income. He found that since s. 4(5) of the SABS precludes calculating IRBs on the basis of unreported income, any possible IRB would have a quantum of zero, so pursuing the claim to an arbitration hearing was an abuse of process. He concluded that no IRBs were payable.

Mr. Whittaker appeals on the grounds that the Arbitrator erred in conducting a written hearing and that s. 4(5) does not apply to employees, so he is entitled to an oral hearing for a determination of his IRBs based on other documentation.

However, since I find the Arbitrator was correct in concluding that s. 4(5) applies to employees, and since Mr. Whittaker never filed income tax returns during the relevant period, it follows that nothing he could say at a hearing would alter the result, so the Arbitrator was also correct in finding there was no good reason for not conducting a written hearing.

II. BACKGROUND AND ANALYSIS

Mr. Whittaker was injured in an accident on June 14, 2013. An IRB was paid from approximately the date of the accident up to March 31, 2014. Several times Aviva wrote fruitlessly to Mr. Whittaker asking for copies of his income tax returns from one year prior to the accident to the present. They were not produced even after an order by the pre-hearing Arbitrator. Accordingly, that Arbitrator ordered a preliminary issue hearing regarding Mr. Whittaker’s entitlement to IRBs. The hearing came before Arbitrator Shapiro.

Arbitrator Shapiro first noted the lack of production and the positions of the parties. He then determined that he would decide the issue in a written hearing, even though this was not a procedural matter. He noted that s. 5 of the SPPA² and Rule 37 of the DRPC³ regarding written hearings are substantially identical. For instance, s. 5.1(2) of the SPPA provides that a tribunal “shall not hold a written hearing if a party satisfies the tribunal that there is good reason for not doing so,” but s. 5.1(2.1) lifts that proscription if the only purpose of the hearing is to deal with procedural matters. The Arbitrator wrote on p. 7 that “the Applicant’s statement that the SPPA prohibits the conduct of a Hearing in writing, unless it is on non-procedural matters, is not accurate. It is only where a party satisfies the Arbitrator that there is good reason not to do so that a Hearing should not be in writing.” He found there was no good reason for not conducting a written hearing and that such a hearing was preferable to an oral one.

Turning to the allegation of abuse of process, the Arbitrator found that no income tax returns had been filed.

On appeal, Mr. Whittaker concedes that, indeed, he has not filed tax returns since 2010. All his pre-accident income is therefore unreported.

The Arbitrator relied on Howell and Chartis Insurance Company of Canada (FSCO A12-000029, July 30, 3014). He noted that Howell dismissed a claim in similar circumstances under section 23(1) of the SPPA, which provides a tribunal authority to make orders to prevent abuse of its processes. He cited the discussion in Howell to the effect that s. 4(5) of the SABS, which deals with unreported income, requires income to be reported to the CRA in order for IRBs to be payable; any unreported income does not form part of the IRB calculation.

In this case, as in Howell, the Arbitrator noted the IRB would therefore be zero. He found that the central nature of this inquiry was Mr. Whittaker’s forcing Aviva to a hearing on that issue despite his inability to prove it. He found this was an abuse of process. In any event, the IRB was zero so Mr. Whittaker was not entitled to IRBs after March 31, 2014, the date they were cut off.

On appeal, Mr. Whittaker submits that he should have been allowed to provide oral evidence to back his claim for IRBs and that the Arbitrator erred in his interpretation of s. 4(5) of the SABS. He submits it only applies to the self-employed.

I will deal with s. 4(5) first. Because of the conclusion I reach, it follows there was no good reason for an oral hearing.

Subsection 4(5) is the subsection in dispute. As stated in Howell, it provides that unreported income that should have been reported to the tax authorities cannot be included in the calculation of an IRB.

The essence of Mr. Whittaker’s submission is that subsection 4(2) deals with employed persons and the remaining subsections in s. 4, including s. 4(5), only deal with the self-employed. However, that is incorrect, as will be seen by putting it into the context of all of s. 4.

Section 4, entitled “Interpretation,” is the first section in Part II of the SABS, itself entitled “Income Replacement, Non-Earner and Caregiver Benefits.”

Subsection 4(1) sets out some definitions. For instance, it provides that “gross weekly employment income” means, in respect of an insured person, 1/52nd of the amount of the person’s gross annual employment income, as determined under subsection 4(2).

Subsection 4(2), in turn, sets out how the gross annual employment income of an insured person is to be determined. Paragraph 1 of s. 4(2) applies to those who were employed – and not self-employed – at the time of the accident:

(2) The gross annual employment income of an insured person is determined as follows:

1. In the case of a person referred to in subparagraph 1 i of subsection 5 (1) [employed at the time of the accident] who was not a self-employed person at any time during the four weeks before the accident, the person’s gross annual employment income is whichever of the following amounts the person designates:

i. The person’s gross employment income for the four weeks before the accident, multiplied by 13.

ii. The person’s gross employment income for the 52 weeks before the accident.

By way of contrast, paragraphs 2 and 3 of s. 4(2) apply to self-employed (and unemployed) persons. They provide that the self-employed person’s gross annual employment income is based on either the 52 weeks before the accident, or the last fiscal year if they had worked for at least one year before the accident.

(2) The gross annual employment income of an insured person is determined as follows:

2. Subject to paragraph 3, the person’s gross annual employment income is his or her gross employment income for the 52 weeks before the accident if,

i. the person qualifies for a benefit under subparagraph 1 i of subsection 5 (1) [employed] and was a self-employed person at any time during the four weeks before the accident, or

ii. the person qualifies for a benefit under subparagraph 1 ii of subsection 5 (1) [unemployed adult].

3. If the person described in subparagraph 2 i was self-employed for at least one year before the accident, the person may designate as his or her gross annual employment income the amount of his or her gross employment income during the last fiscal year of the business that ended on or before the day of the accident.

The important point to remember is that s. 4(2) and the phrase gross annual employment income apply to both employees and the self-employed.

Subsection 4(3) applies only to self-employed persons. It contains another important phrase, where it provides for the determination of a self-employed person’s weekly income or loss from self-employment at the time of the accident:

(3) A self-employed person’s weekly income or loss from self-employment at the time of the accident is the amount that would be 1/52 of the amount of the person’s income or loss from the business for the last completed taxation year as determined in accordance with Part I of the Income Tax Act (Canada).

Subsection 4(4) is not relevant in this case, as it deals with a self-employed person’s loss from self-employment after an accident, other than it repeats the phrase loss from self-employment.

Subsection 4(5) then provides that unreported pre-accident income cannot be included in the calculation of pre-accident income as part of determining an IRB:

(5) If, under the Income Tax Act (Canada) or legislation of another jurisdiction that imposes a tax calculated by reference to income, a person is required to report the amount of his or her income, the person’s income before an accident shall be determined for the purposes of this Part without reference to any income the person has failed to report contrary to that Act or legislation.

As set out in Chiasson v. R., 2014 TCC 158, taxpayers are required to report their income and are subject to penalties for not doing so. I have already pointed out that Mr. Whittaker agrees that he has not filed income tax returns since 2010.

Mr. Whittaker submits that, since subsections (3) and (4) only apply to the self-employed, it follows that the same is true of subsection (5). However, nothing in s. 4(5) suggests that it applies only to the self-employed. Subsections (3) and (4) merely work together to establish how to treat income and loss for the self-employed. In turn, subsection (5) works together with subsection (6) to deal with unreported income and any changes in the tax authorities’ determination of income. The importance of the phrases I have highlighted above comes to the fore in s. 4(6), a kind of saving provision to s. 4(5), in that it allows a recalculation of pre-accident income where the tax authorities make a redetermination of income or loss:

(6) The amount of a person’s gross annual employment income and the amount of the person’s income or loss from self-employment may be adjusted for the purposes of this Part to reflect any subsequent change in the amount determined by the Canada Revenue Agency under the Income Tax Act (Canada) or by the relevant government or agency under the legislation of another jurisdiction that imposes a tax calculated by reference to income. [Emphasis added.]

The phrase “gross annual employment income” in s. 4(6) refers back to the general determination of gross annual employment income set out in s. 4(2), which applies to both the self-employed and those who are not. The phrase “income or loss from self-employment” appears in s. 4(3), and applies only to the self-employed. Thus, since the saving provision uses both phrases, it applies to both persons who are self-employed and those who are not. Since the saving provision in turn applies to s. 4(5), s. 4(5) necessarily also applies to the employed as well as the self-employed. Therefore, the Arbitrator was correct in finding that s. 4(5) applies to Mr. Whittaker.

Beyond that, I have already determined that the same provision in the old Regulation, the SABS–1996,⁴ applies to employees, as Mr. Whittaker helpfully reminded me in his reply submissions.

In Uribe and Wawanesa Mutual Insurance Company, (FSCO P09-00021, February 5, 2010), s. 64.1 of the 1996 SABS was at issue. Subsection 64.1(1) was worded nearly identically to what is now s. 4(5), except that it included a start date for accidents occurring after April 14, 2004. The saving provision in s. 64.1(2) was similar to that in s. 4(6), except for the key difference that a change in assessment could also follow an insured’s report of income and not just on the basis of the CRA’s redetermination. I held that, on re-filing, the insured could have his IRB determination adjusted. I was upheld on appeal in Wawanesa Mutual Insurance Company v. Uribe, 2010 ONSC 5904.

Most relevant to this appeal, Mr. Uribe was an employee and not self-employed, just like Mr. Whittaker. Further, the Court cited with approval several passages from my decision, including this: “Subsection 64.1 applies to a person who is required to report the amount of his or her income under the Act. If the person has failed to report any income contrary to the Act, that income is not included in the determination of the income.” The Court agreed when it stated that “s.64.1 (1) penalizes a claimant who fails to report income to Revenue Canada...” There was no suggestion that this provision only applied to a self-employed person.

In passing, I note that until 2004, case law at the Commission had long established that failure to pay income taxes by insureds – whether employed or self-employed – did not bar them from claiming and recovering IRBs, but they had to establish their income by some other reliable, independent evidence. For instance in Ntiri and Prudential of America General Insurance Company (Canada), (OIC A-002213, April 19, 1993), Mr. Ntiri failed to report any of his Toronto Star income to Revenue Canada. This 2004 amendment affected both the employed and the self-employed, as was recognized in Uribe, and it was carried forward into the 2010 SABS.

Accordingly, I find the Arbitrator was correct when he found that Mr. Whittaker was not entitled to an IRB as he had no reported income to include in its calculation.

As to the fairness issue and whether there should have been an oral hearing, Mr. Whittaker submits that the Arbitrator erred in deciding the matter in a written hearing. He submits that he had good reason to provide viva voce evidence to support his claim for an IRB.

However, since he never filed tax returns for the relevant period, nothing he could say at an oral hearing would change the conclusion that his IRBs would be zero. This was therefore a perfect case for a written hearing, as an oral hearing was unnecessary.

Accordingly, I find the Arbitrator did not err either in conducting a written hearing, or in concluding that Mr. Whittaker is not entitled to IRBs.

The appeal is dismissed and the order is affirmed.

III. EXPENSES

If the parties are unable to agree about expenses of this appeal, an expense hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.

June 5, 2017

David Evans Director’s Delegate Date

Footnotes

1. 1The Statutory Accident Benefits Schedule — Effective September 1, 2010, Ontario Regulation 34/10, as amended.
2. 2The Statutory Powers Procedure Act, R.S.O. 1990, c. S.22.
3. 3The Dispute Resolution Practice Code, 4th Edition
4. 4The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.