Neutral Citation: 2018 ONFSCDRS 3 FSCO A12-003716

BETWEEN:

MARGARET CYR Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY Insurer

DECISION ON EXPENSES

Before: Arbitrator Charles Matheson

Heard: In person at ADR Chambers on November 25, 2016

Appearances: Mr. Stanley Razenberg, lawyer, participated for Ms. Margaret Cyr Mr. Paul Omeziri, lawyer, participated for State Farm Mutual Insurance Company

Issues:

The Applicant, Ms. Margaret Cyr, was injured in a motor vehicle accident on December 6, 2008. She applied for and received statutory accident benefits from State Farm Mutual Automobile Insurance Company (“State Farm”), payable under the Schedule.¹ The parties were unable to resolve their disputes through mediation, and Ms. Cyr applied for Arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c. I.8, as amended.

The issue in this Expense Hearing is:

Which party is liable for the other party’s legal expenses in respect of the Arbitration?

Result:

Ms. Cyr is liable to pay the legal expenses of State Farm for the Arbitration in the fixed amount of $11,000.00, inclusive of disbursements and taxes.

EVIDENCE AND ANALYSIS:

Legislation and Case Law considered

Insurance Act, R.S.O. 1990, c. I.8, Section 282(11)

Legal Aid Services Act, R.S.O 1998, O. Reg. 107/99

Dispute Resolution Practice Code (4th Edition, Rev’d. January 2014)

Young v. Young, 1993 CanLII 34 (SCC), [1993] 4 S.C.R.3

Galganov v. Russell (Township), 2012 ONCA 410, [2012] O.J. No. 2679

Begin v. Cameron, [2014] O.J. No. 4794

Gnys (C.O.B. Health Services Recovery Network) v. Narbutt, [2015] O.J. No. 5024

Cousineau and Zurich Insurance Company (FSCO A98-001084)

Boamah and ING Insurance Company of Canada (FSCO A05 B 001772)

McCormack and Aviva Canada Inc. (FSCO A04 B 002722)

Gogna and State Farm Mutual Automobile Insurance Company (FSCO A08-001134)

Background

This Expense Hearing arises as a result of the Arbitration for this matter which took place on January 19 and 20, 2015. The Arbitration was originally scheduled for four days. At the outset of the Hearing, the Insurer raised a Preliminary Issue which resulted in the exclusion of all the documentary evidence and all the Applicant’s witnesses save and except for the Applicant’s testimony.

The Application for Arbitration was dismissed by my decision, dated March 24, 2015.

My decision was appealed to the Director’s Delegate, where the Delegate upheld my decision in 2016. A Judicial Review of the Delegate’s decision was commenced on July 7, 2016, and should be heard in mid-2017.

This expense award will be issued once the Judicial Review permits, if applicable.

Decision

Arguments

The Insurer argues, in part, that it is entitled to all of its expenses, in the amount of $16,957.85, as it believes that it qualifies for same under Section 12(2) of the Expense Regulation 664, which reads, in part, as follows:

(2) 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.

The Insurer argues that the key factor for the expense award is that the Insurer was completely successful in the Arbitration when the whole Application for Arbitration was dismissed, and that the Applicant’s counsel’s actions hindered and prolonged the proceedings when they refused to communicate at any time during the Pre-Hearing process and failed to deliver important documents to the Insurer.

The delinquent actions of the Applicant’s counsel includes violating the Dispute Resolution Practice Code (“DRPC”) when they failed to disclose witnesses or the documents they would rely upon for the Hearing prior to the 30-day window before the Hearing commencement date. Thus, the Insurer argues that the Arbitration was vexatious and unnecessary as the Applicant proceeded to Arbitration without providing evidence to support her claim.

Further, the Insurer argues that all of the expenses it seeks should be awarded personally against the Applicant’s law firm as contemplated and allowed in Section 282(11.2)(c) of the Insurance Act and in accordance with Rule 78 of the DRPC, which read as follows, respectively:

Insurance Act

s. 282 (11.2) An arbitrator may make an order requiring a person representing an insured person or an insurer for compensation in an arbitration proceeding to personally pay all or part of any expenses awarded against a party if the arbitrator is satisfied that,

(a) in respect of a representative of an insured person, the representative commenced or conducted the proceeding without authority from the insured person or did not advise the insured person that he or she could be liable to pay all or part of the expenses of the proceeding;

(b) in respect of a representative of an insured person, the representative caused expenses to be incurred without reasonable cause by advancing a frivolous or vexatious claim on behalf of the insured person; or

(c) the representative caused expenses to be incurred without reasonable cause or to be wasted by unreasonable delay or other default. 2002, c. 22, s. 127.

DRPC

Rule 78.1 The maximum amount that may be awarded to an insured person or an insurer for legal fees, is an amount calculated using:

(a) the hourly rates established under the Legal Aid Services Act, 1998 for professional services in civil matters before the Ontario Superior Court of Justice; or

(b) the hourly rate referred to in Rule 78.1(a) adjusted to include, where appropriate, the experience allowance established under the Legal Aid Services Act, 1998;

Where an adjudicator is satisfied that a higher amount for legal fees to an insured person is justified, an hourly rate of up to $150 may be awarded.

Rule 78.2 The maximum amount that may be awarded to an insured person or an insurer for agent’s fees is an amount calculated using the hourly rates established under the Legal Aid Services Act, 1998 for law clerks, articling students and investigators.

The Insurer relies upon Cousineau and Zurich Insurance Company where Arbitrator Killoran notes at paragraph 6 of his decision the following principles:

The main criterion in assessing an applicant's claim for arbitration expenses is reasonableness, subject to the rules set out in the expense regulation. An award of expenses is a matter within an arbitrator's discretion, considering all the circumstances of the case.
While the Legal Aid Tariff governs the maximum hourly rate applicant’s counsel may charge, the Tariff does not restrict an arbitrator's discretion in fixing the number of hours that may be billed.
Rather than a "line by line" enquiry into an applicant's claim for expenses, arbitrators should fix a reasonable ballpark figure based on all the circumstances, including the dockets submitted, and the length and complexity of the hearing.
The conduct of the parties which may have tended to shorten or lengthen the proceedings is a relevant factor.

In regards to awarding expenses personally against the Applicant’s counsel, the Insurer also relies upon Arbitrator Wilson’s comments noted in Boamah and ING Insurance Company of Canada at paragraph 29 that states: “While it has been suggested that expense orders should not be made lightly against lawyers and agents, there are situations where such an action is not only reasonable but necessary” and again in McCormack and Aviva Canada Inc., where at paragraph 28, Arbitrator Wilson states “While it is clear from Young that aggressive tactics may not alone attract a personal award of costs, incompetence or failure to abide by the standards of a lawyer or representative could, if the result of the incompetence is delay or increased costs to the other party.”

Counsel for the Applicant agrees that the Insurer is entitled to its reasonable expenses and disbursements and that I have the discretion to award same. They also agree that a line by line assessment of the Insurer’s expenses is not appropriate in this instance, but a global assessment approach is.

The Applicant argues that the jurisprudence for FSCO Arbitration Expense Hearings shows Arbitrators use a wide range of ratios in their decision-making processes which are a 1:1 to 4:1 ratio in preparation time to number of Hearing days. In this case, the Arbitration was scheduled for four days at seven hours per day, which would result in a range of 28 to 112 hours. Adding to that, the actual two days of the Hearing would equate to a range of 42 to 126 hours for preparation and Hearing time. Applicant’s counsel suggests this is the appropriate range for consideration and not the 150.4 hours being claimed by the Insurer.

Further, the Applicant argues that a lower range ratio of 1:1 or 1:1.5 should only be considered because:

The Insurer did not call any witnesses at the Hearing;
The Insurer did not have to meet and prepare any doctors or other witnesses;
The Insurer’s Preliminary Issue was successful, which significantly reduced the complexity of the case;
The complete Hearing consisted of viva voce evidence in-chief and cross examination of the Applicant.

It is submitted that the alternative ratios noted above would equate to a total of 56 hours of preparation and Hearing time. The Applicant submits that the ratio of the claimed time spent by the lawyer and his clerks listed in the defense’s Bill of Costs would now equate to 31 lawyer hours and 25 law clerk hours. Therefore, they submit that the proper calculation of the maximum allowable hourly rates under the Legal Aid Services Act of $103.94 per hour for lawyer’s rates and $27.96 per hour for law clerk’s would equal $3,222.14 for lawyer time and $699.00 for law clerk time plus $509.74 for HST which gives a total of $4,430.83, for the labour being payable by the Applicant.

In regards to disbursements, the Applicant agrees that this is required to be paid as well; however, the Applicant takes issue with the amount of $813.00 being claimed as conduct money. As conduct money is not something that would be expensed or paid out by defense counsel, it is not payable in this case; therefore, it is submitted that disbursements be fixed at $28.60, leaving a grand total of $4,459.43 to be considered as the appropriate amount to be awarded.

In regards to awarding the expenses against the Applicant’s counsel personally, Applicant’s counsel argues that in doing so, I must take into account the following criteria:

The conduct of the lawyer must come within the requirements of the statute which authorizes the making of a costs award against a lawyer personally;
In deciding whether or not to make an award for costs against a lawyer personally, the Adjudicator’s discretion is limited by the ‘extreme caution’ principle first introduced by the Supreme Court of Canada in Young v. Young, and developed subsequent jurisprudence arguments found in the Ontario Court of Appeals case Galganov v. Russell (Township).

Applicant’s counsel quotes the Supreme Court in Young v. Young in regards to the “extreme caution” principle as follows:

The basic principle on which costs are awarded is as compensation for the successful party, not in order to punish a barrister. Any member of the legal profession might be subject to a compensation order for costs if it is shown that repetitive and irrelevant material, excessive motions and applications, characterized the proceedings in which they were involved, and that the lawyer acted in bad faith in encouraging this abuse and delay. It is clear that the courts possess jurisdiction to make such an award, often under statute and, in any event, as part of their inherent jurisdiction to control abuse of process and contempt of court…[C]ourts must be extremely cautious in awarding costs personally against a lawyer, given the duties upon a lawyer to guard confidentiality of instructions and to bring forward with courage even unpopular causes. A lawyer should not be placed in a situation where his or her fear of an adverse order of costs may conflict with these fundamental duties of his or her calling.

In regards to the awarding of expenses to the Applicant’s counsel personally, I remain unconvinced that Applicant’s counsel acted in a manner that was so outrageous that expenses should be awarded against them personally. Although Applicant’s counsel suggested that he was responsible for the administration of the file, he maintained that his clerk disobeyed or ignored his instructions, which in itself, this act of inadvertence, does not warrant the assessment of expenses against a lawyer personally. In my view, lawyers are not held to a standard of perfection. I remain unconvinced that the outcome of the Arbitration would have been different had the Insurer not been successful in its Preliminary Issue.

However, I am convinced that Applicant’s counsel’s tactic of not communicating with the Insurer during the Pre-Hearing process, and then waiting until the last possible moment to communicate with the Insurer within the 30-day period prior to the Hearing, caused the Insurer to devise a second strategy for the Arbitration. The Insurer had to do its own due diligence while equipped with blinders on, as it had no idea the case it had to make in response to the Applicant’s arguments.

In review of the Insurer’s Bill of Costs, I agree with the Applicant’s assessment of the disbursements and award same.

In regards to the hourly rate for Insurer’s senior counsel, I agree with Applicant’s counsel that the rate listed in Regulation 107/99 of the Legal Aid Services Act, 1998 is $103.94 per hour for Insurer’s counsel, and the law clerk’s rate per hour is $27.96. However, I note that a lawyer with the experience of Insurer’s counsel would also be subject to Section 24.1 and 24.2 of Part IV of the Regulation 107/99, as well. With the adjustment of a further 25%, I find that the correct hourly rate in these circumstances is $129.93 per hour for Insurer’s counsel.

EXPENSES:

Having considered the applicable criteria in the DRPC, the written submissions of the parties, and the Bills of Costs from the Insurer, I find that State Farm is entitled to its reasonable expenses for the Arbitration Hearing preparation, which is fixed in the amount of $11,000.00, inclusive of disbursements and taxes.

January 5, 2018

Charles Matheson Arbitrator

ARBITRATION ORDER

Under section 282 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 Ontario Regulation 664, as amended, it is ordered that:

Ms. Cyr is liable to pay the legal expenses of State Farm for the Arbitration in the fixed amount of $11,000.00, inclusive of disbursements and taxes.