A panel of the Divisional Court of Ontario’s Superior Court
of Justice (Justices Marrocco, Nordheimer and Whitaker) dismissed an appeal
brought by a lawyer who had been suspended from practicing law by a Law Society of Upper Canada Appeal Panel. The panel found that the lawyer had engaged in conduct unbecoming a lawyer. [See Cengarle
v. Law Society of Upper Canada 2014 ONSC 1884]
The appeal arose as a result of the lawyer’s position as the
executor of an estate. He became the executor in 1988. At the time,
the value of the estate was approximately $250,000.
In 1991, the lawyer advanced a loan of $118,000 from the
assets of the estate to a long-standing employee of his law firm. The Law
Society’s Hearing Panel found that the loan was advanced in order to permit the
employee to placate a client of the lawyer’s firm for money’s that the client
had lost on a loan to another client of the firm. The client blamed the
lawyer’s employee for the loss and made certain threats if she was not repaid
the money. The Hearing Panel found that the client’s threats where the
motivation for advancing the loan.
Not only did the loan represent about 50% of the value of
the estate, it was initially unsecured. Although, at a later point the
loan became partially secured, at no point in time was the loan ever fully
secured.
The loan was repaid in 2007. Both the principal and
the interest were paid to the estate over this period of time.
At the initial hearing, the Hearing Panel
concluded that the lawyer had engaged in conduct unbecoming a lawyer and that
he had breached his fiduciary duty as the executor of the estate by making an
imprudent and unsecured investment, i.e. the loan.
The Appeal Panel upheld the Hearing Panel’s decision and
went further, finding that the lawyer had breached section 27 of the Trustee
Act. That section provides that a trustee: “...must exercise
the care, skill, diligence and judgment that a prudent investor would exercise
in making investments.” .
The Divisional Court upheld the decision of the
Appeal Panel. Associate Chief Justice Marrocco, writing for the court,
held that the standard of review applicable to the issues was one of
“reasonableness”. He held that the Trustee Act is a statute closely connected
to the Law Society’s disciplinary function and engages the frequent situation
of a lawyer acting as an executor or trustee. The Appeal Panel’s
application of the Trustee Act in deciding whether a lawyer
has engaged in conduct unbecoming of a lawyer is one that is entitled to
deference from the court.
The Divisional Court held that just because the loan was
repaid with interest, did not mean that the test in section 27 of the Trustee
Act had been met. What was important is whether, at the time of
making the loan, the lawyer complied with the provisions of the Trustee Act.
The test in section 27 is measured against the reasons and analysis
undertaken at the time that the investment decision was made.
In this case, there was no overall investment
strategy in operation. Secondly, the investment amounted to approximately
half of the value of the assets of the estate. Thirdly, the investment
was not justified by any offsetting investments. To the contrary, the
making of the loan was entirely dictated by the lawyer’s desire to assist his
employee and to placate his client.
Accordingly, the lawyer’s appeal was dismissed and the
Hearing Panel’s order of suspension of the lawyer from practicing law for a period of 30 days was re-instated.
Regards,
Blair
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