The Law Society of Upper Canada v. Nguyen, 2015 ONSC 7192

The Law Society of Upper Canada v. Nguyen, 2015 ONSC 7192

CITATION: The Law Society of Upper Canada v. Nguyen, 2015 ONSC 7192

DIVISIONAL COURT FILE NO.: 378/14

DATE: 20151118

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

SWINTON, V. J. MACKINNON AND D.L. CORBETT JJ.

BETWEEN:

THE LAW SOCIETY OF UPPER CANADA Applicant (Respondent in Appeal)

– and –

TANG TRANG NGUYEN Respondent (Appellant)

COUNSEL: Glenn M. Stuart, for the Applicant (Respondent in Appeal) William Friedman and Patrick Bakos, for the Respondent (Appellant)

HEARD at Toronto: November 18, 2015

ORAL REASONS FOR JUDGMENT

D. L. CORBETT J. (ORALLY)

1This is an appeal from The Law Society Appeal Panel (as it was then known) setting aside portions of a decision of a Hearing Panel dismissing complaints of professional misconduct relating to twelve mortgage transactions against Mr. Nguyen. The Appeal Panel allowed the appeal and remitted most of the complaints respecting ten of the transactions to a new Hearing Panel for a fresh hearing.

2The Appeal Panel’s reasoning is summarized in paras. 4 and 5 of its Decision:

[4] We allow the appeal and order a new hearing in relation to 10 of the transactions. The panel made two fundamental errors in law. First, it erred in its definition of fraud. This tainted its analysis of whether the Law Society had proven, on a balance of probabilities, knowing participation in fraud or failure to be on guard.

[5] Second, it erred in its analysis of whether the Law Society had proven a failure to serve the Lawyer’s clients to the standard of a competent lawyer. The panel reasoned, in essence, that if a lawyer believes on reasonable grounds that the lender already has material facts, he or she has no obligation to disclose those facts to the lender or even confirm with the lender that it has otherwise learned of those facts. In our view, a lawyer must disclose all material facts to his or her lender client, particularly those that might suggest fraud. He or she is not entitled to assume or speculate as to whether the lender knows those facts. This error of law tainted the panel’s determination of whether the Lawyer, in failing to disclose, fell below the standard of a competent practitioner and brought the profession into disrepute.

3The Appeal Panel correctly stated the test for fraud and reasonably stated a lawyer’s disclosure obligation. The Appeal Panel then set out two key legal errors in the Hearing Panel’s Decision at paras. 18-20:

[18] The panel erred at various points in its analysis by finding that fraud is unproven, even where there was dishonesty as to the material features of the transaction, if there was no intent to permanently deprive the lender of money. At para. 502, in particular, it noted that in two transactions, there may have been an attempt to deceive the lender about the nature of the transaction, but not to deprive the lender of any money. This is a clear error of law in light of the principles described above. Fraud occurs when the lender is misled about the material features of the transactions.

[19] Another key aspect of the panel’s reasoning was its conclusion that a lawyer is not obligated to disclose material facts to a lender if the lawyer simply believes, on reasonable grounds, that the lender is already aware of those facts: see paras. 10-16. It relied for this proposition on Commerce Capital Trust Co. v. Berk (1989), 1989 4338 (ON CA), 68 O.R. (2d) 257 (C.A.).

[20] In our view, the hearing panel’s analysis of Commerce Capital and its conclusion were in error. A lawyer must disclose to the lender all material facts, including any red flags of fraud, unless the lawyer actually knows that the lender is aware of those facts. A lawyer is not excused from the obligation to advise the lender of material facts because the lawyer merely assumes or believes, without verification from the lender, that the lender already has those facts. Such a belief may be relevant to whether the lawyer knew, was reckless or willfully blind as to fraud, but there may still be a finding of professional misconduct for failure to be on guard or failure to serve.

4The appellant’s counsel argues that a lawyer’s duty to disclose material information to his client is satisfied if the lawyer reasonably believes his client knows the information already. The appellant relies on Commerce Capital in support of this proposition. As noted, the Appeal Panel rejected this argument: see paras. 19-25 of its Decision. It concluded that the Commerce Capital case is of no assistance to the appellant and we agree. The Commerce Capital case turns on the materiality of information. The case is premised on the principle that a lawyer has a fiduciary duty to disclose to his client all material facts.

5Appellant’s counsel argues that a lawyer only has this disclosure obligation in respect to material relevant information. The Appeal Panel does not hold otherwise.

6Appellant’s counsel then argues that material relevant information is information that could affect the client’s assessment of the risks of the transaction. Again, the Appeal Panel does not hold otherwise.

7Appellant’s counsel then argues that if the lawyer reasonably believes his client already knows the information, then further disclosure of it would not affect the client’s assessment of risk.

8This argument conflates materiality and disclosure. The materiality of the information is not affected by whether the client knows about it.

9Finally, the appellant argues that a finding that the client did in fact know about the information and proceeded anyway shows that the information was not material to the client’s decision to proceed with the transaction. It may be relevant to this issue but it is not determinative of it, for obvious reasons: accepting a material risk and not knowing about it are two very different things.

10The appellant argues that the Appeal Panel’s decision is permeated with re-appraisals of fact and credibility. We do not agree. As the Appeal Panel noted in paras. 4 and 5 of the Decision, quoted above, it found that the errors of law went to the heart of the Hearing Panel’s understanding of the issues before it and rendered the factual findings unsafe. This conclusion was reasonable.

11We do not accept that the Appeal Panel interfered with the Hearing Panel’s credibility findings. The Appeal Panel did not rest its decision on credibility issues. The Appeal Panel did raise concerns about the role that credibility played in the Hearing Panel’s Decision and the reliance of the Hearing Panel on demeanor evidence, rather than a more rigorous assessment of credibility. These comments did not affect the disposition of the appeal and are no more than a firm reminder of the proper way in which to assess credibility.

12Finally, the appellant argues that the Appeal Panel erred by failing to assess the reasonableness of the Hearing Panel’s decision as a whole.

13In our view, the Appeal Panel did consider the effect of the Hearing Panel’s errors on the overall decision and concluded that the Hearing Panel’s decisions respecting ten of the impugned transactions were unsafe and would have to go back for a new hearing. This conclusion was reasonable.

14The Appeal Panel gave clear, thorough reasons explaining why the Hearing Panel’s manifest legal errors required intervention. We see no basis on which to interfere. The appeal is dismissed.

SWINTON J.

COSTS

15I have endorsed the Appeal Book, “This appeal is dismissed for oral reasons delivered today by D. L. Corbett J. Costs to the respondent fixed at $10,000 all inclusive.”