Ontario Superior Court of Justice - Divisional Court
DIVISIONAL COURT FILE NO.: 285/14
THEN, SWINTON AND NORDHEIMER JJ.
BETWEEN:
WILLIAM JOHN FRANKLIN BISHOP
Appellant
– and –
LAW SOCIETY OF UPPER CANADA
Respondent
Counsel:
C. Paliare, for the appellant
S. Dewart and T. Gleason, for the respondent
HEARD at Toronto: August 21, 2014
1The appellant, William Bishop, appeals from the decision of the Appeal Division of the Law Society Tribunal dated May 5, 2014, dismissing his appeal from the decision of a Hearing Panel that found that he had engaged in professional misconduct by participating in or knowingly assisting in dishonest and fraudulent conduct by his vendor/purchaser clients and others in obtaining mortgage funds under false pretences in connection with certain transactions. The majority of the members of the Hearing Panel subsequently determined that the appellant’s licence should be revoked. The dissenting member would have imposed an eighteen month suspension followed by permission to practice under supervision.
2The Hearing Panel found that the appellant had knowingly assisted with dishonest and fraudulent conduct in fourteen real estate transactions in which he acted for investors who “flipped” houses to purchasers. These purchasers were all individuals who needed financial assistance to purchase a home. The fraudulent scheme had as its goal the misleading of institutional lenders into financing home purchases in which the ultimate purchasers never actually paid any money towards the purchase price. In other words, the lenders unknowingly financed the entire purchase price. The appellant argues that the Appeal Panel’s decision to uphold this conclusion by the Hearing panel is unreasonabe. In the alternative, the appellant argues that the penalty of revocation of his licence was excessive and unreasonable.
3At the conclusion of the appellant’s submissions, the respondent was only called upon to respond to the issue of the appropriate penalty.
Background
4For the purposes of this appeal, the background facts can be stated briefly. The evidence before the Hearing Panel established that the appellant acted for investors on fourteen real estate transactions by which these investors purchased allegedly undervalued houses and then resold them to purchasers who could afford to purchase a house but who could not afford to come up with the requisite down payment.
5The Hearing Panel concluded that all of these transactions were fraudulent and there is no challenge to that conclusion. The transactions were orchestrated in a manner whereby the individuals who purchased these houses from the investors made no financial contribution to the purchase price of the houses. Rather, the entire purchase price was financed by the unsuspecting institutional lenders including the costs of the transactions along with a profit for the investors. All of this was accomplished through a scheme whereby the investors/vendors advanced funds to make it appear as if the purchasers had paid the required deposits. These monies were put into the purchaser’s bank account so that it would appear to the institutional lender that the purchasers had the requisite resources to pay the deposits. The investors also provided a “gift letter” that was signed by a family member of the purchaser to make it appear as if the family member had made a gift to the purchaser of the deposit amount. All of this was designed to make it appear as if the purchaser had paid a deposit sufficient to cover the 5% necessary contribution to the purchase price that would, in turn, permit the remaining 95% balance of the purchase price to be advanced by the institutional lender. The deposits, of course, had not in fact been paid and, when the scheme was completed, the mortgage lenders wound up actually funding the entire purchase price along with the attendant costs and profit for the investors.
6The appellant was the lawyer for the investors, both on their arm’s length purchases of these houses and on the subsequent resale to the ultimate purchasers. There were fourteen of these transactions undertaken over a forty-two month period. Another lawyer acted for all of the purchasers on these transactions as well as for the institutional lenders, with one exception that I shall mention.
7There were certain other common elements to these transactions. These included:
(a) each agreement of purchase and sale between the investors (as vendor) and the purchaser stated that the purchaser was to pay a deposit of $1,000 to the appellant in trust. None of these deposits were in fact paid;
(b) the investors wrote directly to the lawyer for the purchaser “confirming” that they had received a further deposit directly from the purchaser. These deposits also were not paid although they were portrayed as having been paid through the “gift” mechanism I have described;
(c) the purchaser’s lawyer advised the appellant of the net amount of the lender’s mortgage, after deducting disbursements and his fees;
(d) the appellant then prepared the Statements of Adjustments on the sale to the purchasers. The Statements of Adjustments were “reverse-engineered” by giving credits for deposits and other unspecified costs so that the balance due on closing matched the amount being advanced by the lender.
8The evidence did show that the appellant had concerns about these transactions right from the start. He inquired of his clients whether the transactions were legal. The appellant was told that they were and that the clients had an opinion to that effect. The appellant never asked to see the opinion. The appellant also inquired of the purchasers’ lawyer whether there were any issues with these transactions and was assured that there were not. The appellant had no prior dealings with, or knowledge about, the purchasers’ lawyer.
9In addition to these facts, and as I have mentioned, there was one transaction where there was a different lawyer acting for the purchaser. This new lawyer was not familiar with these types of transactions or the manner in which they were completed. As a consequence, the appellant took on the role of instructing this lawyer on how the transaction would be structured including the reverse-engineering of the Statement of Adjustments.
10The appellant gave evidence before the Hearing Panel. He acknowledged that the institutional lenders would be relying on the agreement of purchase and sale that showed that he was supposed to receive a $1,000 deposit. He admitted that these deposits were never paid. The appellant also acknowledged that the Statements of Adjustments were inaccurate and that they were inaccurate through intention, not through error or inadvertence. The appellant admitted that he reverse-engineered the Statements of Adjustments so that the balance due on closing matched the amount being advanced by the institutional lenders. The appellant also admitted, in terms of the alleged further deposits, that he did not do anything to verify that those further deposits were, in fact, paid. All that the appellant knew was that the investors had advised the purchasers’ lawyer directly about these further deposits. The appellant acknowledged that this process was both unusual and concerning. The appellant also admitted that the amounts of the deposits shown on the Statements of Adjustments frequently did not match the amounts of the alleged further deposits that had been referred to in the letters sent by the investors to the purchasers’ lawyer.
Finding of professional misconduct
11The Hearing Panel found that the appellant knowingly assisted with dishonest and fraudulent conduct. The Hearing Panel rejected the appellant’s contention that he made reasonable inquiries about these transactions and was as much a victim of the fraudulent conduct as were the others. Based on a number of facts, many of which I have set out above, the Hearing Panel concluded that the appellant had also been both reckless and wilfully blind to the fact that the transactions were not bona fide. While the Hearing Panel relied on certain admissions that the appellant made during the course of his evidence, the Hearing Panel also stated that they did not otherwise accept the appellant’s evidence.
12On appeal, the Appeal Panel found that the Hearing Panel’s conclusions were reasonable ones to reach on the evidence. The Appeal Panel found that there was clear evidence, including the appellant’s own admissions, that he was aware that the transactions were fraudulent.
13In my view, the conclusions reached by the Hearing Panel, as affirmed by the Appeal Panel, are unassailable. Perhaps anticipating that eventuality, before this court the appellant changed tack somewhat and submitted that he was duped by his clients and should, consequently, have at most been found guilty of the lesser offence of failing to be on guard against being so duped instead of the more serious offence of participating or knowingly assisting in dishonest or fraudulent conduct. If that conclusion was reached, then the penalty of revocation would clearly be inappropriate.
14The suggestion that the appellant was duped does not withstand even the slightest scrutiny. The appellant was not duped into not receiving the $1,000 deposits under the Agreements of Purchase and Sale. The appellant was not duped into reverse-engineering the Statements of Adjustments. The appellant was not duped into instructing the new lawyer on the one transaction as to how he needed to participate in this activity.
15The appellant relies on statements in the penalty decision to suggest that the Hearing Panel applied an objective standard, rather than a subjective standard, to his conduct. A fair reading of the careful reasons of the Hearing Panel on the merits show that it applied a subjective standard and then concluded that the appellant knowingly assisted in the fraudulent scheme.1 As the Hearing Panel correctly noted, “wilful blindness and recklessness are two states of mind that are tantamount to knowledge”.
16The appellant submitted that the gift letters and the false Statements of Adjustments are “red herrings” in this case because the appellant knew nothing about the former and the lenders did not receive nor rely upon the latter. I do not agree. While the appellant may not have known about the gift letters, he was aware of the alleged further deposits and did nothing to verify that they were real. The importance of the Statements of Adjustments is not that they were relied upon by the lenders but, rather, that they provide fairly compelling evidence that the appellant was not simply an innocent bystander in this scheme. To the contrary, the Statements of Adjustment, and the manner in which they were created, demonstrate that the appellant was a participant in the scheme as does the fact that he instructed the new lawyer for the purchaser in the one transaction.
17The appellant also argues that the Hearing Panel erred in holding him accountable for his actions when it was the lenders who were put at risk through this scheme. He says that the lenders were not his clients and he owed no duty as a solicitor to them. In response to that submission, it should be made crystal clear that the fact that the lenders were not the appellant’s clients is irrelevant to the issue here. The appellant had a professional obligation not to engage in dishonest or fraudulent conduct. It is an obligation that he owes not only to the other members of his profession; more importantly it is an obligation that he owes to the public at large. Any suggestion, or even hint, that a lawyer can participate in fraudulent conduct as long as it does not negatively affect his/her client is one that cannot be countenanced. To hold otherwise would be fundamentally inconsistent with the privileged position that lawyers hold within our society.
18The appellant also points to the decision in Law Society of Upper Canada v. Said Mohammedally, 2014 ONLSAP 5, which he says is factually similar to his case. Mr. Mohammedally had also been involved in a mortgage fraud. However, in that case, the Hearing Panel concluded that Mr. Mohammedally had not knowingly participated in the fraud but, rather, had failed to be on guard against the frauds. Mr. Mohammedally appealed those findings but his appeal was dismissed. The Law Society appealed the sentence of a reprimand. That appeal was successful and a suspension of three months was imposed.
19The appellant submits that, given the similarity of the two cases, the same result should have been reached in both cases, that is, a finding of a breach on the lesser allegation of failing to be on guard against being duped. In support of his submission, the appellant cites the principle that similar cases should give rise to similar results.
20In my view, the appellant’s submission in this regard is founded on a false premise. The principle that similar cases should give rise to similar results is a sentencing principle. It has no application to questions of liability or culpability. This reality simply reflects the fact that cases with very similar facts can give rise to very different results because of the various factors that come into play when making a finding of fault or guilt. Not only can slight variances in facts lead to different results; so can differing views as to the credibility and reliability of witnesses. It is simply not possible to treat cases as if they were governed by a mathematical formula where, if you plug the same data into a formula on different occasions, you can expect to get the same answer. Trials and hearings do not allow for such scientific precision as to outcome.
21There is no dispute that the standard of review in this case is one of reasonableness. On the facts of this case, it cannot be seriously contended that the decision of the Hearing Panel was an unreasonable one. It is certainly one that “falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law”: Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190 at para. 47. The Appeal Panel’s upholding of that decision is equally reasonable.
The penalty imposed
22The appellant’s central argument on the penalty issue is that the Hearing Panel in effect improperly fettered its discretion in terms of deciding on the appropriate penalty by “rigidly” applying the earlier decision of the Appeal Panel in Law Society of Upper Canada v. Mucha, 2008 ONLSAP 5, 2008 ONLSAP 0005. In Mucha, it was held that the penalty of revocation will invariably be ordered in cases of knowing assistance or participation in fraud, absent exceptional circumstances that credibly explain the misconduct. The majority of the Hearing Panel concluded that there were no exceptional circumstances here that explained the appellant’s conduct, while the dissenting view was that there were exceptional circumstances, given the appellant’s belief that the program would assist the financially disadvantaged members of the community, in which he practised, to become home owners.
23The appellant argues that the decision of the Appeal Panel in Mucha effectively provides for a mandatory minimum penalty or, at least, that the Hearing Panel in this case treated it as being akin to one. The appellant says that, due to this approach, the Hearing Panel failed to give adequate consideration to the individual circumstances of the appellant that warranted a lesser penalty. The appellant says that those exceptional circumstances include:
(a) there was extensive evidence regarding the appellant’s good character and reputation for honesty;
(b) the appellant has practiced for more than thirty years and has an otherwise unblemished record;
(c) the appellant practised for nine years during the investigation and discipline process without any instance of misconduct;
(d) the applicant is remorseful and embarrassed and has taken educational courses to avoid further problems;
(d) the appellant’s actions were motivated by his desire to assist the financially disadvantaged to obtain home ownership, and;
(f) the disadvantaged members of the community in which the appellant practises will be deprived of his legal representation and thus effectively be deprived of any reasonable access to such representation.
24There is again no dispute that the standard of review on the penalty appeal is one of reasonableness. There is also no dispute that, on matters of penalty, courts should give considerable deference to penalties imposed by the disciplinary bodies of self-governing professions: Law Society of New Brunswick v. Ryan, 2003 SCC 20, [2003] 1 S.C.R. 247.
25The decision in Mucha also dealt with a situation of a lawyer involved in mortgage fraud. The Hearing Panel had imposed a suspension as the penalty. The Appeal Panel set aside that penalty and instead revoked the lawyer’s licence to practise. In so concluding, the Appeal Panel noted that the presumptive penalty for knowing participation in mortgage fraud was, and had been for some years, revocation of the lawyer’s licence. It followed, according to the Appeal Panel, that only “extraordinary or exceptional” circumstances could warrant a departure from that presumptive disposition.
26In reaching its conclusion, the Appeal Panel in Mucha relied heavily on the decision in Bolton v. Law Society, [1994] 1 W.L.R. 512 where the English Court of Appeal dealt with the same issue, that is, the appropriate penalty to be imposed where a lawyer engaged in fraudulent or dishonest conduct. While acknowledging that it might seem like a harsh penalty, the English Court of Appeal pointed out that there were two other purposes for revoking a lawyer’s licence in such cases.2 One purpose was to ensure that the lawyer could not repeat the conduct. The other was:
… the most fundamental of all: to maintain the reputation of the solicitors’ profession as one in which every member, of whatever standing, may be trusted to the ends of the earth. (at p. 518)
27In the present case, both the Hearing Panel and the Appeal Panel emphasized the importance of public confidence in the integrity and trustworthiness of members of the legal profession. The majority concluded that revocation was an appropriate penalty, given the gravity of the conduct – knowing participation in fraudulent conduct. They found no exceptional circumstances that would explain that participation, rejecting the argument that the appellant’s desire to help the financially disadvantaged excused or mitigated the seriousness of his misconduct in assisting his clients to commit fraud. The Appeal Panel concluded that the decision of the majority of the Hearing Panel on the issue of penalty was a reasonable one.
28I agree with the Appeal Panel that the penalty imposed by the Hearing Panel was a reasonable one. It fulfills the two purposes set out in Bolton. I acknowledge that there does not appear to be any real concern in this case that the appellant would repeat the conduct but that fact does not detract from the pressing need to send a consistent message that engaging in fraudulent conduct by a lawyer is a matter that will not be tolerated because of its impact on the profession as a whole. As was observed by Sir Thomas Bingham M.R. in Bolton, at p. 519:
The reputation of the profession is more important than the fortunes of any individual member. Membership of a profession brings many benefits, but that is a part of the price.
29I do not agree with the appellant’s submission that the Hearing Panel rigidly followed Mucha and failed to give proper consideration to the mitigating factors in this case. First, I note that the Hearing Panel was bound to follow the principles set out in Mucha as it is a decision of an Appeal Panel. In following that decision, however, I am satisfied that the Hearing Panel gave due consideration to the mitigating factors but concluded that they did not amount to exceptional circumstances, at least in part because they failed to explain why the appellant participated in the conduct. The mitigating factors that were present instead were akin to the ones that led Sir Thomas Bingham M.R in Bolton to say the following, at p. 519:
It often happens that a solicitor appearing before the tribunal can adduce a wealth of glowing tributes from his professional brethren. He can often show that for him and his family the consequences of striking off or suspension would be little short of tragic. Often he will say, convincingly, that he has learned his lesson and will not offend again. On applying for restoration after striking off, all these points may be made, and the former solicitor may also be able to point to real efforts made to re-establish himself and redeem his reputation. All these matters are relevant and should be considered. But none of them touches the essential issue, which is the need to maintain among members of the public a well-founded confidence that any solicitor whom they instruct will be a person of unquestionable integrity, probity and trustworthiness.
30I would add two other observations on this point. The first observation is that there is nothing per se objectionable to a profession setting out presumptive penalties for breaches of different types of professional obligations. It is no different than appellate courts setting out presumptive penalties for certain types of offences. Moreover, it is not accurate to characterize such presumptive penalties as “mandatory minimums” with all of the attendant concerns that may accompany statutorily mandated sentences. Rather, presumptive penalties act as a guide, both for the entity imposing the penalty and for the persons who may be subject to such penalties.
31The other observation is that the mitigating factors that will amount to exceptional circumstances in any given case are not restricted to only certain types or forms. Medical reasons or financial desperation or situations of duress serve as examples of the type of mitigating factors that may amount to exceptional circumstances but those situations are not exhaustive of such factors. That said, it remains the case that any such factors will normally have to be ones that would rise to the level where it would be obvious to other members of the profession, and to the public, that the underlying circumstances of the individual clearly obviated the need to provide reassurance to them of the integrity of the profession. I would add, on that point, that factors that provide an explanation for the conduct of the lawyer will generally be ones that would most likely reach that requisite level of mitigation but they are not the only ones that may achieve that result.
Conclusion
32The appeal is dismissed. The stay of the decision to revoke the appellant’s licence that was continued by this court at the conclusion of the appeal will expire at the end of thirty days from today unless further extended by another court.
33The appellant will pay to the respondent the costs of the appeal fixed in the amount of $10,000 inclusive of disbursements and HST, this amount having been agreed between the parties.
NORDHEIMER J.
THEN J.
SWINTON J.
Date of Release:
CITATION: William Bishop v. Law Society of Upper Canada, 2014 ONSC 5057
DIVISIONAL COURT FILE NO.: 285/14
DATE: 20140902
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
THEN, SWINTON and NORDHEIMER JJ.
BETWEEN:
WILLIAM JOHN FRANKLIN BISHOP
Appellant
– and –
THE LAW SOCIETY OF UPPER CANADA
Respondent
REASONS FOR JUDGMENT
NORDHEIMER J.
Date of Release:
