Cengarle v. The Law Society of Upper Canada

[Indexed as: Cengarle v. Law Society of Upper Canada]

Ontario Reports

Ontario Superior Court of Justice, Divisional Court,

Marrocco A.C.J.S.C., Nordheimer and Whitaker JJ.

March 24, 2014

119 O.R. (3d) 317 | 2014 ONSC 1884

Case Summary

Professions — Barristers and solicitors — Discipline — Law Society Hearing Panel finding that appellant had engaged in conduct unbecoming lawyer in that he breached his fiduciary duty as executor of estate by making imprudent and unsecured loan to employee from assets of estate — Loan repaid and considerable amount of interest paid to estate — Hearing Panel not failing to apply s. 27 of Trustee Act and in any event Appeal Panel applying s. 27 in affirming Hearing Panel's decision — Test in s. 27 not met simply because end result of investment was positive or because overall value of portfolio increased — Trustee Act, R.S.O. 1990, c. T.23, s. 27.

While acting as executor of an estate, the appellant lawyer advanced a loan from the estate assets to an employee in order to placate a client. The loan was initially unsecured and represented about half of the value of the estate. It was ultimately repaid, and a considerable amount of interest was paid to the estate. The Law Society Hearing Panel found that the appellant had engaged in conduct unbecoming a lawyer in that he breached his fiduciary duty as executor of the estate by making an imprudent and unsecured investment. The Appeal Panel affirmed that decision. The appellant appealed.

Held, the appeal should be dismissed. [page318]

The Hearing Panel did not fail to apply s. 27 of the Trustee Act in coming to its conclusion regarding the prudence of the loan as an investment. In any event, the Appeal Panel applied s. 27. If the Hearing Panel had failed to apply s. 27, there was no requirement that the Appeal Panel reverse the Hearing Panel and order a new hearing. It was entitled to do that which the Hearing Panel was required to do, so long as the evidentiary foundation for doing so was present. The test in s. 27 is not met simply because the end result of any investment is a positive one or because the overall value of the portfolio increased. Rather, the test in s. 27 is measured against the reasons and analysis undertaken at the time that the investment decision was made. There was essentially no overall investment strategy in this case.

Cases referred to

Dunsmuir v. New Brunswick, [2008] 1 S.C.R. 190, [2008] S.C.J. No. 9, 2008 SCC 9, 329 N.B.R. (2d) 1, 64 C.C.E.L. (3d) 1, EYB 2008-130674, J.E. 2008-547, [2008] CLLC Â220-020, 170 L.A.C. (4th) 1, 372 N.R. 1, 69 Imm. L.R. (3d) 1, 291 D.L.R. (4th) 577, 69 Admin. L.R. (4th) 1, 95 L.C.R. 65, D.T.E. 2008T-223, 164 A.C.W.S. (3d) 727; Law Society of Upper Canada v. Cengarle, [2013] L.S.D.D. No. 74, 2013 ONLSAP 17, affg [2012] L.S.D.D. No. 109, 2012 ONLSHP 96; Newfoundland and Labrador Nurses' Union v. Newfoundland and Labrador (Treasury Board), [2011] 3 S.C.R. 708, [2011] S.C.J. No. 62, 2011 SCC 62, EYB 2011-199662, 2012EXP-65, 2012EXPT-54, J.E. 2012-46, D.T.E. 2012T-7, 424 N.R. 220, 340 D.L.R. (4th) 17, 317 Nfld. & P.E.I.R. 340, [2012] CLLC Â220-008, 213 L.A.C. (4th) 95, 38 Admin. L.R. (5th) 255, 97 C.C.E.L. (3d) 199, 208 A.C.W.S. (3d) 435

Statutes referred to

Trustee Act, R.S.O. 1990, c. T.23, s. 27 [as am.]

APPEAL from a decision of the Law Society Appeal Panel dismissing an appeal from a decision of the Law Society Hearing Panel.

Matthew Wilton, for appellant.

Susan J. Heakes and Joshua D. Elcombe, for respondent.

The judgment of the court was delivered by

[1] NORDHEIMER J. (orally): — Mr. Cengarle appeals from the decision of the Law Society Appeal Panel [ [2013] L.S.D.D. No. 74, 2013 ONLSAP 17] that dismissed his appeal from the decision of the Law Society Hearing Panel [[2012] L.S.D.D. No. 109, 2012 ONLSHP 96]. The Hearing Panel found the appellant had engaged in conduct unbecoming a lawyer.

[2] The issues arise out of the appellant's position as the executor of an estate. The appellant became the executor in 1988. At that time, the value of the estate was approximately $250,000.

[3] Much of the evidence before the Hearing Panel and the Appeal Panel came from an agreed statement of facts. Those facts show that, in 1991, the appellant advanced a loan of [page319] $118,000 from the assets of the estate to a long-standing employee of the appellant. It was found by the Hearing Panel that this loan was advanced in order to permit the employee to placate a client of the appellant's firm for moneys that the client had lost on a loan to other clients of the firm. The client blamed the appellant's employee for the loss and made certain threats if she was not repaid the lost moneys. As found by the Hearing Panel, the threats of this client were the motivation for the advancement of the loan.

[4] Not only did the loan advanced to the employee represent about 50 per cent of the value of the estate, the loan was initially unsecured. Although, at a later point, the loan became partially secured, at no point in time was the loan ever fully secured. Nevertheless, the fact is that the loan was repaid in 2007. Both the principal and a considerable amount of interest was paid to the estate over this period of time.

[5] The Hearing Panel concluded that the appellant had engaged in conduct unbecoming a lawyer in that the appellant had breached his fiduciary duty as the executor of the estate by making an impudent and unsecured investment, namely, the loan in issue.

[6] The central contention of the appellant is that the Hearing Panel failed to apply s. 27 of the Trustee Act, R.S.O. 1990, c. T.23 in coming to its conclusion regarding the prudence of the loan as an investment. The appellant goes from this position to further assert that, while the Appeal Panel applied s. 27, the Appeal Panel erred by failing to reverse the decision of the Hearing Panel on this "central issue". The appellant further contends that the Appeal Panel misapplied the requirements of s. 27 in its conclusion upholding the Hearing Panel's decision.

[7] I begin by addressing the issue raised regarding the appropriate standard of review. The appellant submits that the standard of review is correctness whereas the respondent submits that the standard of review is reasonableness.

[8] In my view, the standard of review applicable to the issues raised by the appellant is one of reasonableness. I conclude that the Trustee Act is a statute closely connected to the Law Society's disciplinary function especially as it relates to a case like the one here that engages the frequent situation of a lawyer acting as an executor or trustee. The Appeal Panel's application of that statute to its decision as to whether an individual member has engaged in conduct unbecoming a lawyer in that relationship is one that is entitled to deference from this court: Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, [2008] S.C.J. No. 9, at para. 54. [page320] The factual findings, and the analysis of the law as it relates to those findings, are similarly entitled to deference.

[9] Turning then to the issues raised, I am not convinced that the Hearing Panel failed to apply s. 27 of the Trustee Act in making its determination. The mere fact that the section was not expressly mentioned is not determinative of that issue. What is important is whether the test for a prudent investor, as set out in the section, was applied. That is all that is required.

[10] On a fair reading of the reasons of the Hearing Panel, the proper test was applied. However, even if it is the case that the Hearing Panel failed to properly apply s. 27, nothing prevented the Appeal Panel from applying the section, as it did, in its review of the decision based on the facts as found by the Hearing Panel. There is no mandatory requirement that the Appeal Panel must simply reverse the Hearing Panel in that situation and order a new hearing. The Appeal Panel was entitled to do that which the Hearing Panel was required to do as long as the evidentiary foundation for doing so was present. As the Supreme Court of Canada confirmed in Newfoundland and Labrador Nurses' Union v. Newfoundland and Labrador (Treasury Board), 2011 SCC 62, [2011] 3 S.C.R. 708, [2011] S.C.J. No. 62, at para. 12:

. . . even if the reasons in fact given do not seem wholly adequate to support the decision, the court must first seek to supplement them before it seeks to subvert them.

[11] I do not agree with the appellant that the Appeal Panel failed to properly apply the test set out in the Trustee Act. Rather, it is the appellant that fails to properly apply that test and, in doing so, he misstates the application of the modern portfolio theory.

[12] It is the central contention of the appellant that, as long as the overall performance of the estate's portfolio was satisfactory, no individual investment could be considered imprudent. I reject that contention. Section 27 of the Trustee Act provides that a trustee

. . . must exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investments.

[13] The test set out in s. 27 is not met simply because the end result of any investment is a positive one or because the overall value of the portfolio increased. Rather, the test in s. 27 is measured against the reasons and analysis undertaken at the time that the investment decision was made.

[14] The excerpts from Waters, Law of Trusts, cited by the appellant, also do not support that contention. I do accept that the theory permits a conclusion that a high-risk investment, that [page321] might by itself appear to be imprudent, may nonetheless be appropriate when it is viewed in the context of the overall investment strategy. This will most often arise, as the Waters text points out, where that high-risk investment is made in order to offset other investments that may be inversely affected by economic or market conditions to the high-risk investment. In other words, the high-risk investment operates as a balance to the other parts of the investment package.

[15] However, that is not the situation here. First, as acknowledged by counsel for the appellant, there was essentially no overall investment strategy in operation in this case. Second, this investment amounted to approximately half of the value of the entire assets of the estate. Third, this investment was not justified by any offsetting investments. To the contrary, as found by the Hearing Panel and relied upon by the Appeal Panel, this loan was entirely dictated by the desire of the appellant to both assist his long-standing employee and to placate a client of his firm. As also found by the Appeal Panel, and amply justified on the record, the prudence of the investment was of no relevance to this decision.

[16] The appeal is dismissed.

MARROCCO A.C.J.S.C.: --

Costs

[17] I have endorsed the back of the appeal book, "This appeal is dismissed. Costs to the respondent in the agreed amount of $13,500 inclusive of disbursements and taxes. The order staying the appellant's suspension is extended on consent to April 30, 2014."

Appeal dismissed.

End of Document