CITATION: Racco v. Ontario (Real Estate and Business Brokers Act, 2002), Registrar, 2015 ONSC 6233
DIVISIONAL COURT FILE NO.: 181/15
DATE: 20151104
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
H. Sachs, E. Kruzick and Wilton-Siegel JJ.
BETWEEN:
PETER RACCO
Appellant
– and –
REGISTRAR, REAL ESTATE AND BUSINESS BROKERS ACT, 2002
Respondent
Emily Lawrence, for the Appellant
Robert Maxwell and Jonathan Miller, for the Respondent
HEARD at Toronto: September 25, 2015
H. Sachs J.:
Nature of the Proceeding
[1] This is an appeal from the decision of the Licence Appeal Tribunal (the “Tribunal”) dated March 18, 2015 directing the Registrar, Real Estate and Business Brokers Act, 2002, to carry out his proposal to revoke the Appellant’s registration as a real estate broker.
Factual Background
[2] The Appellant has been a real estate broker since 1989. He has no history of disciplinary proceedings or complaints.
[3] On October 31, 2011, he was convicted of one count of sexual assault in relation to an assault on a former employee of his brokerage business, J.K. that occurred on May 16, 2010. The assault, which was preceded by unwanted sexual comments, involved the Appellant forcibly kissing J.K. by putting his tongue in her mouth and placing his fingers over her pants in her genital area.
[4] On April 13, 2012, the Appellant was sentenced to sixty days in jail and 24 months’ probation. He successfully appealed his sentence which, on March 22, 2013, was reduced to a six-month conditional sentence.
[5] On August 14, 2012, the Registrar issued his first proposal to revoke the Appellant’s registration as a result of his criminal conviction.
[6] On June 10, 2014, the Registrar issued a supplementary proposal to revoke the Appellant’s registration based on his failure to disclose his involvement in a business called PJR Marketing Inc. (“PJR”) between the years 1997 and 2013, inclusive. In 1997, the Appellant and his [then] wife incorporated PJR, a property management company of which both were directors and equal shareholders. PJR has acquired, and rents out, properties to tenants and was used by the Appellant to pay salaries to the administrative staff he employed for his real estate brokerage business. The administrative staff also performed functions for PJR, including collecting rents.
[7] The Appellant did not disclose the existence of PJR on his application for registration as a broker or on his subsequent applications for renewal between 1997 and 2013, inclusive. Specifically, he answered “No” to a question that took two slightly different forms during the relevant time period. On the Appellant’s 1999 application for renewal, the question was phrased, “Will you be engaged or employed in any other business, occupation or profession?” In 2001, the wording of the question changed slightly to become “Are you or will you be engaged or employed in any other business, occupation or profession?”
[8] On March 18, 2015, the Tribunal directed the Registrar to carry out his proposal to revoke the registration of the Appellant’s brokerage licence. That decision has been stayed pending this appeal.
[9] From December of 2011 until the present, the Appellant has been practising as a real estate broker subject to certain conditions.
Regulatory Framework
[10] In order to trade in real estate and business brokerage in Ontario, individuals must be registered as real estate salespersons or brokers. The registration process is overseen by the Registrar, who is appointed by the Real Estate Council of Ontario (“RECO”). RECO is the body that administers and enforces the Real Estate Business Brokers Act, 2002, S.O. 2002, c. 30, Schedule C (the “Act”) and its regulations.
[11] To register, individuals must meet eligibility and education requirements; once registered, they must apply to the Registrar to renew their registration bi-annually. Under s. 10(1)(a) of the Act:
An applicant that meets the prescribed requirements is entitled to registration or renewal of registration by the registrar unless,
(a) the applicant is not a corporation and,
(i) having regard to the applicant’s financial position or the financial position of an interested person in respect of the applicant, the applicant cannot reasonably be expected to be financially responsible in the conduct of business,
(ii) the past conduct of the applicant or of an interested person in respect of the applicant affords reasonable grounds for the belief that the applicant will not carry on business in accordance with law and with integrity and honesty, or
(iii) the applicant or an employee or agent of the applicant makes a false statement or provides a false statement in an application for registration or for renewal of registration.
[12] Under s. 13 of the Act, the Registrar may refuse to grant or renew an application for registration if he or she finds that the application raises one of the concerns outlined in s. 10. Section 14 of the Act requires the Registrar to give notice to the applicant if this is the case and the applicant has the right to request that the Tribunal hold a hearing respecting the Registrar’s proposal. For s. 10 hearings, the Tribunal may either direct the Registrar to carry out his or her proposal or substitute its own opinion for that of the Registrar.
[13] Under s. 11(1) of the Licence Appeal Tribunal Act, 1999, S.O. 1999, c. 12, Schedule G, applicants or the Registrar have a statutory right of appeal to the Divisional Court from the Tribunal’s decisions on questions of law or fact.
Standard of Review
[14] The parties agree that the standard of review that is applicable to the Tribunal’s decision in this case is reasonableness.
The Tribunal’s Decision
[15] The Tribunal concluded that the Appellant’s conduct with J.K. and his non-disclosure of PJR afforded reasonable grounds for the belief that he will not carry on business in accordance with law and with integrity and honesty. The Tribunal considered whether a sanction less than revocation would be appropriate, but found that the cumulative effect of the Appellant’s past conduct was serious enough that revocation was called for. Thus, it directed the Registrar to carry out his proposal.
Was the Tribunal’s decision that the Appellant’s conduct afforded reasonable grounds for belief that he will not carry on business in accordance with law and with honesty and integrity unreasonable?
[16] As already indicated, the Tribunal based its conclusion on this point on two grounds: (1) Mr. Racco’s conduct towards J.K., which culminated in a conviction for sexual assault; and (2) his failure to disclose his interest in PJR.
[17] On this appeal, the Appellant challenges both bases for the Tribunal’s findings. First, he asserts that the purpose of s. 10 of the Act is to protect the public from future risk. This was not a discipline proceeding so that punishing the Appellant for his past misconduct was not part of the Tribunal’s mandate.
[18] According to the Appellant, the Tribunal misdirected itself when it required the Appellant to satisfy it that he had changed since the events giving rise to the criminal charges. In doing so, it unreasonably narrowed the required assessment of future risk in a way that caused it to disregard three main areas of evidence that established that the Appellant posed very little risk of engaging in similar conduct in the future: the findings of the trial and appeal judges in his criminal proceedings that the Appellant presented little risk of re-offending, the fact that the Appellant had no prior complaints in the 28 years leading up to the events giving rise to his conviction and in the four-and-a-half years since these events, and the fact that the Appellant presented character evidence consistent with the finding of the criminal trial judge that the conduct giving rise to the criminal conviction was out of character for him.
[19] Regarding the Appellant’s non-disclosure of his business interest, the Appellant submits that the Tribunal erred when it made its finding without any evidence that the Appellant’s non-disclosure was the result of a deliberate intent to deceive.
[20] I accept that the Tribunal’s reasons do not make mention of the fact that both the trial judge and the appellate judge in the criminal proceedings accepted that “there is little risk that the [Appellant] will re-offend” (Zisman J. in R. v. Racco (13 April 2012), Halton, 10-2903 (Ont. Ct. J.), at para. 20). The sentencing judge also accepted that the sexual assault “seems to be totally out of character” (Zisman J., at para. 16). I do not accept the submission that the Tribunal was bound by these findings such that it was precluded from engaging in its own assessment as to whether the Appellant’s past conduct (including the sexual assault) afforded “reasonable grounds for belief that the [Appellant] will not carry on business in accordance with law and with integrity and honesty”.
[21] In assessing the Appellant’s submission on this point, it is important to recognize the difference between the Tribunal’s mandate and that of the sentencing judge. Unlike the sentencing judge, the Tribunal had to consider the Appellant’s past conduct with a view to assessing whether that conduct raised a concern about the Appellant’s character such that there was reason to believe that he would not carry on business in accordance with law and with honesty and integrity. For the Tribunal, this assessment went beyond merely asking whether the Appellant was likely to re-offend. It included recognizing that the Appellant’s conduct had revealed seriously troubling aspects of his character, traits that had led him to sexually assault an employee and that caused him to fail to disclose the existence of PJR. These raised concerns about his ability to carry on his business in accordance with law and with integrity and honesty. As put by the Tribunal, at p. 8:
The Tribunal has two areas of concern about Mr. Racco’s eligibility for continuing registration. First, the Tribunal is concerned about Mr. Racco’s conduct surrounding his criminal conviction. Second, the Tribunal is concerned about Mr. Racco’s failure to disclose the existence of his business to PJR to the Registrar, a failure that continued from the founding of the business through his most recent application for renewal.
[22] The Tribunal considered, at pp. 8-9, the Appellant’s counsel’s submissions that the Appellant was “a good person who did a bad thing and that there was no reason to believe he hadn’t learned his lesson” and that the Appellant’s “criminal conduct was an aberration, now he is back to the person he always was”. The Tribunal found that it did not have evidence before it that the former was the case and, in fact, the evidence that it did have just heightened its concerns that "the person he always was" was not a person who would carry on his business in accordance with law and with integrity and honesty
[23] First, it is important to recognize that the Appellant did not testify before the Tribunal. Thus, the only evidence it had before it about the Appellant’s attitude towards his criminal behaviour was the evidence that he had given at his criminal trial, which was that he had been the victim of an assault by J.K. As put by the Tribunal, at p. 9: “[t]here is no evidence before this Tribunal that Mr. Racco has ever changed his view of what occurred. While [Mr. Racco’s counsel] asserts that Mr. Racco’s basic character should be “obvious”, it not obvious to the Tribunal that Mr. Racco has ever accepted responsibility for his actions. He was not the victim; he was the perpetrator. It is not obvious that Mr. Racco accepts this.”
[24] The Tribunal recognized that remorse was not a pre-condition to registration. However, it also concluded, at p. 10, that “without any concrete evidence of a change in understanding, what the Tribunal is left with is conduct which raises legitimate concerns about Mr. Racco’s ability to conduct his business lawfully and with honesty and integrity”. These concerns were heightened by the second concern that it had with the Appellant’s past conduct – his failure to reveal the existence of PJR. The finding was doubly significant, not just as an independent ground of concern but also because it demonstrated that "the person he always was" was a person who withheld material information from the Registrar in his annual renewal application for many years.
[25] In assessing this aspect of the Appellant’s conduct, the Tribunal considered the definition of the term “business” in the Act, which is defined in s. 1(1) as “an undertaking carried on for gain or profit and includes any interest in such undertaking”. It also had before it the following evidence:
(a) The evidence that the Appellant was a fifty percent shareholder and president of PJR, which was a property management and investment company that, at the time of the hearing before the Tribunal, owned and leased five residential properties and one commercial site.
(b) About ten years prior to the hearing before the Tribunal, PJR began paying the salaries for the administrative staff at the Appellant’s brokerage business. This staff also performed administrative functions for PJR.
(c) As of October 31, 2011, the shareholders’ equity in PJR was just under $1.4 million.
(d) The financial statements of PJR clearly disclose that it earns income, including rental income. In 2010, the net income (or profit) realized totalled over $87,000.00.
(e) In divorce proceedings in 2012, the Appellant disclosed his interest in PJR and indicated that he owned it equally with his wife, that PJR owned seven properties, and that the total shareholders’ equity was $1.4 million.
[26] Based upon this evidence, the Tribunal found as follows with respect to PJR, at p. 10:
Even if Mr. Racco originally believed that the business did not need to be disclosed, by the time PJR began paying salaries, he either knew or ought to have known that it had become a ‘business’ as defined under the Act. Moreover, PJR was a business engaged in holding and rental of reals estate. As such, the Registrar might reasonably have been expected to have questions about a possible conflict of interest. Despite this, Mr. Racco persisted in the non-disclosure of PJR, even on his most recent application for renewal [which took place in 2013, after he filed evidence regarding PJR in his matrimonial proceedings].
[27] The Appellant submits that the Tribunal was not entitled to make the findings with respect to his conduct in relation to PJR as it had no evidence before it from which it could reasonably draw the inference that his conduct in failing to disclose his interest in PJR was due to a deliberate intent to deceive as opposed to mere inadvertence. In this regard, he points to the evidence of his former wife and partner in PJR, who was also a broker and did not disclose her interest in PJR in her annual applications for renewal. Further, the Appellant submits that the Tribunal erred in asserting that it did not have to find that the Appellant knew that PJR was a business under the Act. On this point, the Appellant emphasizes the Tribunal’s use of the phrase “knew or ought to have known”.
[28] The Appellant's submissions raise the question of whether a finding under Act s. 10(1)(a)(iii) required the Registrar to establish that the Appellant had a deliberate intent to deceive when he made the false statement on his applications for registration. There is no need to resolve this issue as, in this case, the Tribunal had more than enough evidence from which it could reasonably infer that the Appellant knew that PJR was a business that had to be disclosed under the Act.
[29] First and foremost, there was clear evidence that, in 2012 in the matrimonial proceedings, the Appellant discussed PJR as a business that owned real estate and that produced income. Thus, there can be no suggestion that, when the Appellant signed his 2013 renewal form, he did not know or had forgotten that he owned an interest in PJR (something that would be difficult to believe given its value). Second, the Tribunal had evidence that the Appellant used PJR to pay administrative salaries in his brokerage business. This indicates clear knowledge of its existence and a clear connection between the two businesses. Third, while the Tribunal had before it the Appellant’s former wife’s explanation for why she did not disclose her interest in PJR, they had no explanation from the Appellant as to why he failed to disclose his interest in PJR. Further, the Tribunal explicitly rejected the former wife’s explanation (which was that she did not believe she had to disclose her interest in PJR because she was not paid a salary), finding, at pp. 10-11, that:
There is nothing in the wording of the renewal application that limits a business or occupation to one which pays a salary. The wording refers to being ‘engaged or employed in any other business…’. Mr. Racco and Ms. Racco-Attardo were engaged in a business which grew to have shareholder equity well in excess of a million dollars. It was an active business that involved owning and renting out property. There was also a component of property management. There is no evidence before the Tribunal as to why Mr. Racco chose not to disclose the business. What is clear that the business should have been disclosed.
The non-disclosure was material and persistent. Mr. Scholtzhauer testified as to the importance of disclosing business interests. The Tribunal agrees that honest disclosure of material facts in a registration application is an important requirement under the Act. As a result of the non-disclosure, Mr. Racco cannot be said to have had an unblemished track record prior to his criminal conviction. In fact, the non-disclosure of PJR on his applications constitutes a separate ground for revocation under the Act. It is also evidence of past conduct that the Tribunal must consider in assessing the future conduct of Mr. Racco’s business.
[30] It is true that, in its reasons, the Tribunal uses the phrase “known or ought to have known” in relation to the Appellant’s non-disclosure of PJR. However, it is important to recognize that the function of this court is not to parse the reasons of the Tribunal with a view to subverting them, but to seek to read them together with the outcome and the record with a view to deciding whether the result falls within the range of possible outcomes. (Newfoundland and Labrador Nurses’ Union v. Newfoundland and Labrador (Treasury Board), 2011 SCC 62, [2011] 3 S.C.R. 708). As emphasized in Newfoundland Nurses, at para. 18, “[r]easons do not have to be perfect.”
[31] In my view, read in the context of all of its reasons as a whole and taking into account the record, the Tribunal’s reference to “ought to have known” was a reference to the fact that the Appellant could not reasonably have thought that he was not engaged in a business. Given this, given the evidence that he did know that he was engaged in a business, and the lack of evidence to the contrary, the reasonable inference to draw was that he did know and deliberately chose to mislead the Registrar on this point.
[32] The question then becomes whether the Tribunal’s conclusion that the Appellant’s past conduct affords reasonable grounds for belief that Mr. Racco will not carry on business in accordance with law and with integrity and honesty was a reasonable one.
[33] In my view, it was. The Appellant’s past conduct included two instances that the Tribunal reasonably concluded to be serious where the Appellant had not acted in accordance with law or with honesty and integrity. The Tribunal had no evidence before it on the basis of which it could conclude that whatever character traits had led the Appellant to behave in this way would not cause him to behave in a manner of concern again. With respect to the events surrounding the criminal conviction, the only evidence it had was evidence that reinforced its concern that the Appellant had no insight into or understanding of his behaviour. The Tribunal also did not have any evidence that the Appellant had taken any steps to address whatever it was in his character that caused him to engage in the conduct that resulted in his criminal conviction. In this regard, it found, at p. 10, that one character witness’s evidence that the Appellant had attended a “healing church” and was going on “healing retreats” did not give it “any evidence of what changes have occurred or what Mr. Racco has learned from his experience”. With respect to the other character witnesses, the Tribunal considered their evidence, but found, at pp. 9-10, that they “were not helpful in understanding what Mr. Racco has done since his conviction to accept responsibility for his conduct or to prevent such conduct from recurring. He apparently did not discuss these issues with the people he called to testify on his behalf.” Further, with respect to the Appellant's failure to disclose PJR in his annual renewal application, such conduct demonstrated repeated dishonesty over many years that both pre-dated the events giving rise to the criminal conviction and continued after such events and his conviction.
Was the Tribunal’s decision to direct the Registrar to revoke the Appellant’s registration unreasonable?
[34] The Appellant submits that the Tribunal’s decision to direct the Registrar to revoke the Appellant’s registration is disproportionate and excessive. According to the Appellant, the decision is directed at denouncing his conduct and was harsher than necessary to protect the public. A more appropriate remedy would have been to continue to allow him to continue to act as a broker, but with conditions. In this regard, the Appellant points out that he had been practising as a broker with conditions for four years prior to the hearing date and there had been no further incidents. He argues that registration with conditions would have struck the appropriate balance between protecting consumers from further risk and allowing the Appellant to earn a livelihood.
[35] The Respondent submits that, as a matter of statutory interpretation, the Tribunal had no ability to impose conditions.
[36] I do not find it necessary to address this argument as the Tribunal’s decision on penalty is owed considerable deference and was reasonable. The Tribunal specifically addressed the question of whether a sanction short of revocation might be possible. One alternative it considered was whether a suspension to permit counselling and the completion of a RECO course together with the imposition of ongoing terms and conditions would suffice. In the end, the Tribunal decided that revocation was called for.
[37] In assessing the reasonableness of this decision, I agree with the Appellant that the Tribunal’s mandate was not to punish or denounce the Appellant for his past behaviour. However, as the Appellant and the Tribunal recognized, it was to protect the public. Given that the Appellant's past behaviour discloses two serious incidents that raise real concerns about his ability to act in accordance with the law and with honesty and integrity, and that the Tribunal had no evidence before it from which it could conclude that the character traits that led to that behaviour had been dealt with, it was not unreasonable for it to make the finding that the only way to protect the public was to direct the Registrar to revoke the Appellant’s licence. With no understanding of what led to the behaviour in the first place, how could the Tribunal reasonably fashion conditions that would address the causes of the behaviour and then put in place mechanisms to ensure that behaviour of equal concern does not recur? This is particularly problematic where, as in the present circumstances as the Tribunal pointed out, the Appellant operates independently and without supervision in most of his interactions with the public. As the Tribunal found, at p. 13:
The purpose of the Act is to protect the consumer in what is, for most people, the single most significant financial decision they will make. Real estate brokers frequently act independently in situations where they are alone with clients.
Conclusion
[38] For these reasons, the appeal is dismissed. The Respondent is entitled to its costs of the appeal which the parties have agreed should be fixed in the amount of $5000.00.
H. SACHS J.
E. KRUZICK J.
WILTON-SIEGEL J.
Released: November 4, 2015
CITATION: Racco v. Ontario (Real Estate and Business Brokers Act, 2002), Registrar, 2015 ONSC 6233
DIVISIONAL COURT FILE NO.: 181/15
DATE: 20151104
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
H. Sachs, E. Kruzick and Wilton-Siegel JJ.
BETWEEN:
PETER RACCO
Appellant
– and –
REGISTRAR, REAL ESTATE AND BUSINESS BROKERS ACT, 2002
Respondent
REASONS FOR JUDGMENT
H. SACHS J.
Released: 20151104