CITATION: Law Society of Upper Canada v., Nguyen, 2017 ONSC 5431

DIVISIONAL COURT FILE NO.: 272/16

DATE: 20170914

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Then, Sachs and Nordheimer JJ.

BETWEEN:

The Law Society of Upper Canada

Applicant/Respondent

– and –

Cuong The Nguyen (also known as Steven Nguyen)

Respondent/Appellant

Glenn Stuart and Keith Crawford, for the Applicant/Respondent

Brad Teplitsky, for the Respondent/Appellant

HEARD at Toronto: July 31, 2017

Sachs J.:

Introduction

[1] Mr. Nguyen is a real estate lawyer in Toronto. The Law Society brought disciplinary proceedings against him alleging that he had participated or assisted in fraudulent conduct in relation to eight mortgage transactions over a two-and-a-half-year period between 2006 and 2009. During that same period Mr. Nguyen acted on approximately 750 real estate transactions.

[2] The Law Society Tribunal – Hearing Division (the “Hearing Panel”) found that the Law Society had failed to prove that the eight transactions were fraudulent. However, it did find Mr. Nguyen guilty of professional misconduct in relation to seven of the eight transactions because he failed to advise his lender clients of certain material facts in relation to the transactions. The Hearing Panel suspended Mr. Nguyen for two months.

[3] The Law Society Tribunal – Appeal Division (the “Appeal Panel”), in a decision dated April 27, 2016, allowed, in part, an appeal by the Law Society of the Hearing Panel’s decision. In doing so the Appeal Panel found that the Hearing Panel erred in law in its definition of mortgage fraud and that this error tainted its analysis of the evidence. As a result, the Appeal Panel set aside the Hearing Panel’s findings and ordered a new hearing with respect to six of the eight impugned transactions.

[4] Mr. Nguyen appeals from the Appeal Panel’s decision and asks that its order be set aside.

[5] For the reasons that follow I would dismiss Mr. Nguyen’s appeal.

Factual Background

[6] The hearing before the Hearing Panel proceeded on the basis of an Agreed Statement of Fact, which set out the details of the eight impugned transactions. The Law Society also called an expert in real estate law and practice and professional standards, who provided generic evidence and was not asked to comment on the specifics of any of the transactions. Mr. Nguyen testified on his own behalf.

[7] The facts surrounding the six transactions that remain at issue are set out below. I have numbered the transactions in the same manner as the proceedings below.

#1. 28-3690 Keele Street, Toronto

[8] In this transaction Mr. Nguyen acted for both the purchaser and the mortgagee or lender. The purchase price was $180,000, a deposit of $5,000 had been paid to the vendor and a mortgage was arranged for $135,000. This left a balance of approximately $40,000 (subject to adjustments) to be paid on closing.

[9] In fact the purchaser paid $14,691 on closing, with the balance of almost $29,000 being paid by way of promissory note to the vendor (for which the purchaser received a credit as shown on the Statement of Adjustments). The promissory note did not contain a repayment date or interest rate.

[10] The mortgagee’s instructions provided that it was to be advised of any “unusual credits on the statement of adjustments in favour of the Borrower” (Law Society of Upper Canada v. Nguyen, 2016 ONLSTA 9, 2016 ONLSTA 09, at para. 48).

[11] The mortgagee was never advised of the credit in the Statement of Adjustments for the promissory note.

[12] When Mr. Nguyen investigated the promissory note, it was explained to him that when the purchaser was unable to come up with the entire proceeds due on closing, the vendor agreed to accept a promissory note rather than lose the property through power of sale proceedings, which had already been commenced. Mr. Nguyen was satisfied that the credit was legitimate.

#3. 5442 Wellington Road, Guelph

[13] Mr. Nguyen acted for both the purchaser and lender in this transaction. According to the Agreement of Purchase and Sale, the purchase price was $440,000, with $5,000 to be paid to the vendor by way of deposit. The mortgage advance was $395,176, which left it up to the purchaser to pay approximately $40,000 (subject to adjustments) on closing.

[14] In fact the deposit was never paid and on closing the purchaser provided no funds. Instead he was given a credit of $52,434 in the Statement of Adjustments. The mortgagee was never advised of these facts.

[15] Mr. Nguyen testified that he investigated the credits and was satisfied with the explanation he received. He was advised by the vendor’s lawyer that the vendor and the purchaser were cousins and that the credit was a set-off for a pre-existing debt between the purchaser and the vendor.

#5. 116 Comoq Avenue, Vaughan

[16] Mr. Nguyen acted for both the purchaser and the lender in this transaction. According to the Agreement of Purchase and Sale, the purchase price was $260,000, with a deposit of $5,000 to be paid to the vendor, leaving a balance of $255,000 (subject to adjustments) to be paid on closing. The Agreement of Purchase and Sale specified that this balance was to be paid by bank draft or certified cheque.

[17] The lender advanced $180,000 under a mortgage, leaving a balance of approximately $75,000 to be paid by the purchaser on closing (subject to adjustments). In fact the purchaser paid no funds on closing. Instead the Statement of Adjustments provided for a “gift” credit of $77,477.

[18] The lender was never advised of this “gift” credit.

[19] Mr. Nguyen inquired about the credit and was told by the vendor’s lawyer that the credit was in repayment of an existing private loan. He was satisfied with this explanation.

#6. 320 Hemlock Avenue, Stoney Creek

[20] Mr. Nguyen acted for both the purchaser and the lender in this transaction. The Agreement of Purchase and Sale showed a purchase price of $270,000, with a deposit of $10,000 to be paid to the vendor. This left a balance due on closing of $260,000. The lender advanced $248,832 under a mortgage. According to the Statement of Adjustments, there was a credit of $84,322 for a “gift of equity” by the vendor to the purchaser. Thus, after discharging the prior mortgage, the purchaser was given $64,258 from the proceeds received from the lender on closing.

[21] The lender was never advised of this “gift of equity” credit.

[22] Mr. Nguyen explained that he had investigated the reason for this credit and was satisfied that the credit was to compensate one brother for the fact that the other brother had already taken his equity out of the property.

#7. 60 William Cragg Drive, Toronto

[23] Mr. Nguyen acted for all parties in this transaction.

[24] The purchase price for this transaction was $325,000, with a deposit to be paid to Mr. Nguyen in trust and the balance to be paid by bank draft or certified cheque on closing, subject to adjustments. The lender advanced $275,730 that was secured by a mortgage. In its instructions to Mr. Nguyen the lender required him to notify it of “any material fact known to [him] that might affect its decision to advance the loan” and “any unusual credits on the statement of adjustments in favour of the Mortgagor” (Nguyen, at para. 78).

[25] Mr. Nguyen never received the $5,000 deposit and the Statement of Adjustments provided for a credit of $50,000, which the vendor advised he had received directly from the purchaser. The vendor also told Mr. Nguyen that the deposit had been paid directly to him.

[26] The lender was never told of the $50,000 credit or the direct payment of the deposit.

[27] Mr. Nguyen testified that he had investigated the matter and was satisfied that the sale and credits were legitimate. The purchaser and the vendor were friends who had met in a refugee camp and trusted one another. He was satisfied that the vendor preferred to receive the money directly from the purchaser and that the vendor had or was going to receive this money.

#8. 5 Moncrieff Drive, Toronto

[28] Mr. Nguyen acted for the vendor in this transaction. The purchase price was $350,000 and the Agreement of Purchase and Sale provided that a deposit of $10,000 was to be paid to the vendor’s lawyer (Mr. Nguyen). The lender agreed to advance $331,768 by way of mortgage, leaving a balance of approximately $10,000 to be paid on closing. The Agreement of Purchase and Sale provided that this balance was to be paid by cash or by certified cheque.

[29] In fact the deposit was never paid to Mr. Nguyen and on closing the Statement of Adjustments (prepared by the vendor) showed a credit to the purchaser for $15,685.

[30] The lender was never told about this credit.

[31] Mr. Nguyen testified that he investigated the credit and satisfied himself that it was a genuine repayment for a set of loans between the vendor, the purchaser and a third party.

Mr. Nguyen’s Investigations

[32] Mr. Nguyen’s files contained no notes or documentation to verify Mr. Nguyen’s testimony regarding his investigation of the credits at issue in each of the impugned transactions.

[33] With respect to all six of the transactions, Mr. Nguyen testified that he took steps to satisfy himself that the purchase price in these transactions was a fair reflection of the fair market value for the properties. The Law Society called no evidence to refute Mr. Nguyen’s evidence in this regard.

The Hearing Panel’s Decision

[34] The Hearing Panel began its analysis with the following observation at para. 4 of its decision:

Mr. Nguyen’s understanding of fraud at the relevant time is fundamental to the analysis. He testified that he was aware of mortgage fraud and the red flags of fraud during the 2006-2009 time period. His evidence indicates that he was aware of flip and value fraud and was on the lookout for both in the eight transactions. He understood that flip and value fraud required there to be a sale for greater than fair market value in conjunction with a bogus credit or some other benefit that served to reduce the purchase price. He relies on the fact that the eight transactions took place at fair market value in support of his position that there was no fraud.

[35] The Hearing Panel went on to observe that the Law Society was not alleging a flip or value fraud in that it did not dispute that the sales were for fair market value. Rather, the Law Society was alleging fraud on two bases:

1. “Mr. Nguyen dishonestly failed to disclose credits and/or information to the banks that he knew was material to their decision to lend and to their economic interests. This fraud does not require the credits to be bogus” (at para. 5(i)). According to the Hearing Panel, to prove this type of fraud the Law Society had to satisfy it on a balance of probabilities that “Mr. Nguyen dishonestly and knowingly deprived the bank of information that he knew was material to their economic interests. In this situation, for there to be a fraud Mr. Nguyen must have had actual knowledge that he was depriving the bank of information he knew to be material to their economic interest” (at para. 24).

2. According to the Hearing Panel, the Law Society also alleged fraud on the basis that the transactions at issue were designed by the purchaser and the vendor to mislead the lenders into believing that the purchase price was the one set out in the Agreement of Purchase and Sale, when in fact the actual purchase price was lower because of the illusory credits that were given to the purchaser in each of the transactions. The Hearing Panel found that in order to prove this type of fraud the Law Society had to satisfy it on a balance of probabilities that there was a dishonest scheme by the vendors and purchasers to mislead the lenders about the actual purchase price and “that Mr. Nguyen knew of this scheme, or alternatively, that he suspected dishonesty and chose not to inquire, or was aware of the risk the transactions were dishonest but continued on despite the risk” (at para. 26).

[36] The Hearing Panel accepted Mr. Nguyen’s evidence and found him to be a credible witness. As a result it made the following findings:

(a) Mr. Nguyen’s understanding of fraud was such that as long as the impugned transaction was completed at fair market value in the sense that the credits at issue did not reduce the fair market value then “the lender’s economic interests were not jeopardized and there was no fraud” (at para. 39).

(b) Mr. Nguyen’s limited understanding of fraud at the time was “understandable, given the emphasis in … various [Law Society] publications on value, and given the logical expectation that a lender’s biggest concern was the value of its security” (at para. 48).

(c) Mr. Nguyen was aware of the “red flags” of fraud, but understood that this only triggered in him an obligation to investigate the transaction to see if it was in fact fraudulent.

(d) Mr. Nguyen understood his obligation or duty to the lender at the time as being to report only those credits that he, after investigation, concluded were “bogus” or unjustifiably inflated the purchase price. In other words, as put by the Hearing Panel at para. 58, Mr. Nguyen “understood that a credit must go to value before it was material.” The Hearing Panel found that Mr. Nguyen’s past practice was an honest mistake on his part and that he now knows both that his previous understanding was flawed and that he has an obligation to report all credits to the lender. Further, he still deals with all the lenders in the transactions in issue and none of them have ever raised any question about his conduct.

(e) The Hearing Panel accepted Mr. Nguyen’s evidence regarding the steps that he took to investigate the credits at issue and accepted that “[t]hese practices are sensible for investigating for value fraud and consistent with steps one would expect practitioners to take based on warnings to the profession” (at para. 71).

(f) With respect to each of the eight impugned transactions, the Hearing Panel accepted Mr. Nguyen’s evidence that he had, after conducting his investigations, concluded that all of the credits in dispute were legitimate and did not artificially inflate the purchase price. It also accepted his evidence that “he believed there was no fraud or risk of fraud” (at para. 96). Therefore, “[b]ased on his understanding at the time that he need only report suspicious credits, [the Hearing Panel did] not find that his failure to advise the bank was dishonest” (at para. 98). The decision also makes it clear that in referring to Mr. Nguyen’s understanding at the time it is referring to Mr. Nguyen’s understanding of fraud (see e.g. at para. 144).

(g) The Hearing Panel reviewed the facts relating to each of the eight transactions and came to the conclusion that it was not persuaded, on a balance of probabilities, that the parties to the transaction (the purchaser and the vendor) had the “intent to mislead the lender into granting a bigger mortgage” (at para. 145).

(h) The Hearing Panel concluded with the following at para. 155:

The Society has failed to prove that the eight transactions were fraudulent. The Society has failed to prove that Mr. Nguyen dishonestly withheld the credits and other information from the bank knowing they were material to the bank’s economic interests.

The Appeal Panel’s Decision

[37] The Appeal Panel identified the applicable standard of review of the Hearing Panel’s decision as correctness for questions of law and reasonableness for questions of fact, credibility, mixed fact and law, and penalty.

[38] This is consistent with their jurisprudence (e.g., Law Society of Upper Canada v. Melnick, (2013) ONLSAP 27 at para. 10) and has been endorsed by the Divisional Court in Byrnes v. Law Society of Upper Canada, 2015 ONSC 2939 at para. 29 and Shore v. Law Society of Upper Canada (2009), 96 O.R.(3d) 450 at paras. 59-60.

[39] In (Minister of Citizenship and Immigration) v. Huruglica, 2016 FCA 93 the Federal Court of Appeal makes the point at para. 47 that:

The principles which guided and shaped the role of the courts on judicial reviews of decisions made by administrative decision-makers (as set out in Dunsmuir at paras. 27-33) have no application here. Indeed, the role and organization of various levels of administrative decision-makers do not put into play the tension between the legislative intent to confer jurisdiction on administrative decision-makers and the constitutional imperative of preserving the rule of law.

[40] In Huruglica the Court also states that the standard of review that an administrative appellate tribunal should apply when reviewing a decision of a hearing tribunal is to be determined with reference to the relevant governing legislation and that reasonableness is the proper standard for a court to apply when reviewing an administrative appellate body’s own choice of standard of review.

[41] Section 49.35(1) of the Law Society Act, R.S.O. 1990, c. L.8 provides the Appeal Panel with the jurisdiction to determine any question of fact or law that arises and s. 49.35(2) gives an Appeal Panel the power to make any order or decision that the Hearing Panel could have made. As pointed out in Shore, supra at para. 60, “the Appeal Panel and the Hearing Panel have the same expertise” and “Appeal Panels have a supervisory jurisdiction over Hearing Panels, and one of their functions is to oversee the orderly development of jurisprudence relating to proceedings before the Society.”

[42] Thus, I find that the Appeal Panel reasonably decided that the Hearing Panel had to be correct when it came to questions of law.

[43] The Appeal Panel found that the Hearing Panel made “several fundamental errors in law which tainted its analysis” (at para. 4).

[44] First, it erred in “characterizing the allegations as involving two types of dishonesty which needed to be analyzed and determined separately” (at para. 5). Further, the Appeal Panel went on to find the following at para. 38:

As a result of [the Hearing Panel’s] characterization of the two allegations made by the Law Society, the [Hearing Panel] analyzed each transaction in a very specific fashion. It first reviewed each transaction to determine whether the Lawyer dishonestly withheld the fact of the credits and other information from the lender, focusing on the Lawyer’s ‘actual knowledge’ or subjective belief based on his explanation of his actions. Only then did it examine whether the transactions were fraudulent and if so whether the Lawyer was aware, wilfully blind or reckless about the parties’ dishonesty.

[45] According to the Appeal Panel, “given the nature of the alleged frauds, the hearing panel should have asked itself these questions with respect to each transaction:

1. Were material facts not disclosed to the lender?

2. If so, should an inference of dishonesty be drawn with respect to the transaction? As noted above, an inference of dishonesty can be made based on circumstantial evidence, including red flags of fraud. In the absence of any other evidence, an inference should be drawn that the borrower was subjectively aware that the failure to disclose material facts put the economic expectations of the lender at risk, and accordingly was dishonest.

3. If the transaction was fraudulent, was the Lawyer aware of, willfully blind or reckless to the fraud?

4. If the Lawyer had not knowingly participated in mortgage fraud, had he nevertheless committed a less serious form of professional misconduct by failing to recognize or act on signs of possible fraud?” (at para. 41)

[46] Instead of doing what it was required to do, the Hearing Panel started by focusing on whether Mr. Nguyen believed that the transactions were fraudulent. Instead, it should have started by asking itself whether the transactions were indeed fraudulent. According to the Appeal Panel, this may have caused the Hearing Panel to give “almost no weight to the circumstantial evidence of fraud in relation to a number of the transactions, based on a number of red flags and the expert evidence” (at para. 42).

[47] The Appeal Panel found that the Hearing Panel also made a corollary error when it stated that “the Law Society must prove that the Lawyer had ‘actual knowledge’ that he was depriving the lenders of information he knew to be material to their economic interests. There is no basis for this in our jurisprudence. The hearing panel should have determined whether the Lawyer knowingly, recklessly or while willfully blind facilitated fraudulent transactions” (citation omitted) (at para. 43).

[48] According to the Appeal Panel, by construing the allegations as involving two types of fraud, the Hearing Panel found that it had to be “satisfied that the parties were structuring their transactions to mislead the lenders into believing that the price in the agreement of purchase and sale (“APS”) was the actual price to which the parties had agreed, when in fact the intended price was less by the amount of the credit given to the purchaser on closing” (at para. 8). In fact, in considering whether the transactions were fraudulent the Hearing Panel should have asked itself only whether material facts were not disclosed to the lender and, if they were not, whether an inference of dishonesty should be drawn with respect to the transaction.

[49] The Appeal Panel found that as a result of these errors, the Hearing Panel’s “review of the evidence was skewed” (at para. 7).

[50] Consequently, after reviewing each of the impugned transactions it ordered a new hearing with respect to six of those transactions. With respect to the other two, the Appeal Panel examined the evidence in those transactions and found that in spite of the legal errors in the Hearing Panel’s reasoning, certain key factual findings that the Panel made and the lack of evidence in those transactions supported the Hearing Panel’s conclusion that the Law Society had not proved fraud.

Issues Raised

[51] Mr. Nguyen submitted that the appeal raised four issues:

(i) Did the Appeal Panel err when it found that the Hearing Panel made legal errors in its analysis of mortgage fraud?

(ii) Did the Appeal Panel inappropriately interfere with the Hearing Panel’s credibility findings?

(iii) If there was a basis to disrupt the findings of the Hearing Panel on the issue of mortgage fraud, where does the evidence stand on Mr. Nguyen’s knowing participation in that fraud?

(iv) Having set aside the decision of the Hearing Panel with respect to the six transactions, should the Appeal Panel have substituted its own findings rather than order a new hearing?

Court’s Jurisdiction and Standard of Review

[52] Pursuant to ss. 49.38 and 49.39(1) of the Law Society Act, R.S.O. 1990, c. L.8, Mr. Nguyen has a full right of appeal to the Divisional Court from a final decision of the Appeal Panel.

[53] While the parties did not address the standard of review applicable to the Appeal Panel’s decision, the Court of Appeal in Groia v. The Law Society of Upper Canada, 2016 ONCA 471, leave to appeal granted, [2016] S.C.C.A. No. 310 has clarified that the presumption of reasonableness applies to decisions of the Appeal Panel on questions of law, unless the question is both of central importance to the legal system and outside the tribunal’s area of expertise. This case involves mortgage fraud, an issue that the Appeal Panel deals with on a regular basis and does not fall outside its expertise. Thus, the standard of review that we must apply to the Appeal Panel’s decision is reasonableness.

Did the Appeal Panel Reasonably Conclude that the Hearing Panel Erred in its Analysis of Mortgage Fraud?

[54] As the Appeal Panel noted, the Hearing Panel began its analysis of the applicable legal principles by setting out the test for fraud as articulated by the Supreme Court of Canada in R. v. Théroux, [1993] 2 S.C.R. 5. For the purposes of this judgment it is worth highlighting the relevant aspects of that decision.

[55] In order to make out the actus reus of fraud two things must be established:

(a) A dishonest act, which may be established when deceit, falsehood or “other fraudulent means” is proved. Non-disclosure of material facts falls within “other fraudulent means”; and

(b) Deprivation caused by the dishonest act. As the Hearing Panel noted, “Deprivation is established by proof of detriment, or prejudice or risk of prejudice to the economic interest of the victim caused by the dishonest act” (at para. 19). Actual loss does not have to be proved.

[56] For the purposes of this appeal it is important to note that whether an act is dishonest must be assessed objectively in the sense that it is measured against “what a reasonable person would consider to be a dishonest act” (Théroux, at p. 16). Thus, the question is not what the person accused of fraud thought about his or her conduct. When the actus reus is fraud by “other fraudulent means,” as is the case here, the inquiry is directed at assessing what reasonable people would consider to be honest or dishonest conduct (Théroux, at pp. 16-17).

[57] The Hearing Panel never conducted this objective analysis. Such an analysis would have required asking whether reasonable people, familiar with mortgage practice, would regard it as dishonest to withhold the information that Mr. Nguyen withheld from the lenders in the impugned transactions. Instead of answering this question the Hearing Panel focused on what Mr. Nguyen thought about the honesty of his conduct and then asked whether his evidence about his belief as to the honesty of his conduct was understandable or credible.

[58] The mens rea of fraud requires establishing that the person accused of fraud acted voluntarily with awareness of the external circumstances that are relevant to determining whether his or her conduct was dishonest. If a person has a subjective awareness (in the form of knowledge, willful blindness or recklessness) that the course of conduct that he or she voluntarily undertook could cause deprivation (including the risk of deprivation) then the offence of fraud is made out. The fact that the person accused of fraud may not have perceived that his or her conduct was dishonest or criminal is irrelevant. As put by the Court in Théroux at p. 18:

A person is not saved from conviction because he or she believes there is nothing wrong with what he or she is doing. The question is whether the accused subjectively appreciated that certain consequences would follow from his or her acts, not whether the accused believed the acts or their consequences to be moral. Just as the pathological killer would not be acquitted on the mere ground that he failed to see his act as morally reprehensible, so the defrauder will not be acquitted because he believed that what he was doing was honest.

[59] In its analysis the Hearing Panel focused on Mr. Nguyen’s understanding of fraud with a view to determining whether he knowingly engaged in conduct that he regarded as dishonest or fraudulent. However, the law is clear that Mr. Nguyen’s subjective belief as to what was or was not fraud is irrelevant to the question of whether Mr. Nguyen had the requisite mens rea for fraud.

[60] The Hearing Panel also asked itself whether it was satisfied that the Law Society had established that the parties to the transaction had the requisite intent to mislead the lender into granting a bigger mortgage. However, the issue was not the intention of the parties to the transaction, but Mr. Nguyen’s intention or mens rea.

[61] For these reasons I find that the Appeal Panel’s decision that the Hearing Panel erred in its analysis of mortgage fraud was a reasonable one.

Given the Hearing Panel’s Findings Should the Appeal Panel have Ordered a New Hearing?

[62] The essence of this argument is that even if the Hearing Panel erred in its analysis of fraud, the findings it made, particularly its findings regarding Mr. Nguyen’s evidence, would, if accepted, preclude a finding of fraud. In other words, even if the actus reus of fraud is made out, the Hearing Panel’s findings about Mr. Nguyen’s subjective knowledge would preclude a finding that he had the requisite mens rea for fraud. Thus, there is no need to subject Mr. Nguyen to another hearing.

[63] In terms of the mens rea for fraud, if the external circumstances of the actus reus consist of failing to advise the lenders of the credits at issue then there would appear to be no dispute that Mr. Nguyen intentionally withheld this information from the lenders. The real question is whether, when he did so, he had a subjective appreciation (i.e. knew, was willfully blind to or reckless about) that withholding this information could put the economic interests of the lenders at risk.

[64] In para. 39 of its decision, during the section where it is discussing Mr. Nguyen’s understanding of fraud, the Hearing Panel found as follows:

Mr. Nguyen would not accept that the actual purchase price could be the APS purchase price minus credits that he concluded were genuine. He maintained that the actual price paid in the eight transactions included the funds paid by the purchasers by way of set-off for the pre-existing loans or the gifts of equity. From his perspective, as long as the transaction was completed at fair market value in the context of a legitimate credit that did not effectively reduce that value, the lender’s economic interests were not jeopardized and there was no fraud. (Emphasis added.)

[65] Does this constitute a finding by the Hearing Panel that Mr. Nguyen did not have the requisite mens rea to commit fraud because he did not subjectively appreciate that withholding the information he withheld could run the risk of jeopardizing the lenders’ economic interests? In my view it does not.

[66] First, the statement was not made in the context of a proper mens rea analysis. Rather, it was made in the context of a discussion about Mr. Nguyen’s understanding of fraud, a question that was irrelevant to the issues that the Hearing Panel had to decide. Second, the statement itself only addresses the issue of whether the lender’s economic interests were jeopardized. It does not address whether the lender’s economic interests were at risk of being jeopardized. It also does not deal with the fact that a lender’s economic interests can be jeopardized even if the fair market value of the property is not affected. A mortgagee is not only interested in having sufficient security; it is also interested in ensuring that the mortgagor can make the mortgage payments as they become due. As the Appeal Panel found at para. 20, “[I]t is fraudulent to tell a lie to induce a loan, even a loan that is well-secured.”

[67] More fundamentally, this case raises the same concerns identified in two other cases that were before the Divisional Court: Law Society of Upper Canada v. Talarico, 2014 ONSC 3423 and Law Society of Upper Canada v. Trang Nguyen, 2015 ONSC 7192.

[68] In Talarico the Divisional Court agreed with the Appeal Panel that the Hearing Panel erred in law in its analysis of mortgage fraud and that a new hearing had to be held. As put by the Divisional Court at para. 49:

This error goes to the heart of the matter. If the hearing panel had properly understood the elements of fraud, and the role of circumstantial evidence in proving it, the panel could, and no doubt would have found that there was a fraud in this case. Once satisfied that there was a fraud, it could have appropriately determined whether or not the appellant participated in it. But having misunderstood the nature of fraud, the panel’s conclusion that it is “impossible to draw inferences of fraud or dishonest conduct or intent” on the part of the appellant is fatally flawed.

[69] In Trang Nguyen the Appeal Panel also ordered a new hearing in a mortgage fraud case against a lawyer because of errors of law made by the Hearing Panel. The lawyer appealed and the Divisional Court dismissed his appeal. In doing so the Court found as follows at para. 10:

The 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.

[70] In this case, as in Talarico, the Hearing Panel never properly determined whether there was a fraud or what the external elements of that fraud were. Because of this, any purported analysis of the appellant’s mens rea was fatally flawed. Determining Mr. Nguyen’s mens rea requires first deciding whether the acts that Mr. Nguyen committed were dishonest and objectively put the economic interests of the lenders at risk. It is only once the external circumstances that make up the actus reus are determined that a decision can be made whether the requisite mens rea was established.

[71] The Appeal Panel also found that the Hearing Panel’s fundamental misunderstanding of the issues before it “skewed” its assessment of the evidence. As in Trang Nguyen, this would render its factual findings unsafe.

[72] For these reasons I find that the Appeal Panel reasonably decided that the appropriate remedy in this case was to order a new hearing where the evidence can be analyzed and assessed within the appropriate framework, instead of the erroneous framework that the Hearing Panel used.

Conclusion

[73] For these reasons I would dismiss the appeal. The Law Society has requested its costs fixed in the amount of $6,000. Given Mr. Nguyen’s financial circumstances, I would fix those costs at $5,000, all inclusive.

Sachs J.

I agree. Then J.

Nordheimer J. (dissenting)

[74] I have read the reasons of my colleague, and I respectfully disagree with the conclusion that she reaches. My colleague has fully set out the facts and the essential findings of the Hearing Panel and the Appeal Panel, none of which I have to repeat here.

[75] In my view, the Appeal Panel has used its disagreement with the manner in which the Hearing Panel enunciated the issues to be determined, as a pretext for interfering with the factual and credibility findings made by the Hearing Panel. I also fear that the combined effect of the Appeal Panel’s decision in this case, and my colleague’s affirmation of it, is to effectively convert fraud into an absolute liability offence that will ensnare any lawyer who simply makes an error in judgment in terms of his/her failure to communicate facts to his/her client. It is of some importance, in this regard, to remember that the appellant faced allegations of engaging in professional misconduct based on fraud or dishonest conduct and separate allegations of professional misconduct based on a failure to serve and perform legal services on behalf of his lender clients. The Hearing Panel found the appellant liable for the latter allegations but not the former. It is not as if the appellant has not been penalized for his conduct.

[76] My colleague has correctly set out the standard of review applicable to our review of the decision of the Appeal Panel, i.e. reasonableness. I am not certain, however, that she has correctly set out the standard of review that the Appeal Panel ought to have applied to the decision of the Hearing Panel. I see no reason why the analysis in Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, and other decisions of the Supreme Court of Canada that have followed and built upon it, on the proper approach to be taken to the review of decisions of administrative tribunals, should be different when a court is considering a review of an appeal tribunal or a tribunal of first instance, and when an appeal tribunal is considering a review of a tribunal of first instance. The applicable principles, and their underlying rationales, would appear to apply equally to both. In particular, I am not persuaded by the statement that my colleague quotes from Huruglica v. Canada (Minister of Citizenship and Immigration) at para. 47, which appears to be entirely conclusory in nature, is a sufficient justification for this dichotomy in approach.

[77] However, given the conclusion that I have reached on what I consider to be the central issue raised in this case, I do not propose to embark on an analysis of that question. I am prepared to accept my colleague’s conclusion that the Appeal Panel was correct in finding that the Hearing Panel erred in its understanding of the proper analysis to be applied in determining the actus reus of mortgage fraud.

[78] I also accept my colleague’s explanation of the constituent elements of the actus reus of fraud as set out in R. v. Theroux, [1993] 2 S.C.R. 5. I would only add that in relying on the third type of fraud, “other dishonest means,” which is central to the issue here, McLachlin J. said in Theroux, at para. 18:

As noted above, where it is alleged that the actus reus of a particular fraud is “other fraudulent means”, the existence of such means will be determined by what reasonable people consider to be dishonest dealing.

[79] However, even accepting that the Hearing Panel’s analysis of the actus reus element of fraud was flawed, that does not lead inexorably, as the Appeal Panel found that it did, to the conclusion that the ultimate decision of the Hearing Panel is equally flawed and irretrievably tainted.

[80] On this point, my colleague says, at para. 63:

In terms of the mens rea for fraud, if the external circumstances of the actus reus consist of failing to advise the lenders of the credits at issue then there would appear to be no dispute that the appellant intentionally withheld this information from the lenders. The real question is whether, when he did so, he had a subjective appreciation (i.e. knew, was willfully blind to or reckless about) that withholding this information could put the economic interests of the lenders at risk.

[81] I agree that that is the real question. There was no suggestion that the appellant was himself engaged in a fraudulent endeavour, that is, that he was an active participant in some plan to mislead the lenders. Indeed, there does not appear to be any evidence that the parties to the underlying real estate transactions were engaged in any such fraudulent conduct. The question was whether the appellant had, in some fashion, participated, or assisted, the perpetration of a fraud by intentionally withholding information from his lender clients. The evidence is clear that the appellant was alert to this possibility. Indeed, it was the appellant’s concern that the parties might be involved in a fraudulent transaction, and his recognition of the “red flags,” that led him to make the inquiries that he did regarding the credits so as to satisfy himself that the parties were acting honestly.

[82] In order for the Hearing Panel to conclude that the appellant was guilty of professional misconduct on the basis of fraud, the Hearing Panel not only had to conclude that the transaction was the result of objectively dishonest dealing through the failure to report the credits to the lenders but they also had to be able to conclude that, when the appellant chose not to convey that information to his lender clients, he knew that he was placing the financial interests of his lender clients at risk.

[83] On this point, it is important to remember that, while the actus reus of the offence of fraud may be determined on an objective basis, the mens rea element of the offence of fraud is determined on a subjective basis. This is clear from McLachlin J.’s reasons in Theroux at para. 21. While my colleague is correct when she says that whether the appellant viewed his actions as dishonest, in a moral sense, is irrelevant, it is not irrelevant whether the appellant believed that he was putting the interests of his lender clients at risk. Indeed, that is the critical question to be answered. It is in this regard that I believe that the reasons in Theroux need to be read with some care.

[84] At para. 24 of her reasons, McLachlin J. says:

The fact that the accused may have hoped the deprivation would not take place, or may have felt there was nothing wrong with what he or she was doing, provides no defence.

That statement is made in the context of an actor to the fraud. It cannot be indiscriminately applied to a factual situation, such as occurs here, where we are speaking about the actions of a professional adviser to a party who is only indirectly related to the transaction itself.

[85] It is evident from the factual findings of the Hearing Panel that the appellant did not believe that the undisclosed credits had any financial impact on the transactions themselves and therefore did not impact the position of his lender clients, nor did it put their financial interests at risk. While the appellant may have been wrong in his conclusion, that does not change his subjective belief and it is his subjective belief that counts, subject to any issue about wilful blindness or recklessness, neither of which arises on the facts here. This is made clear, in my view, by the words used by McLachlin J. in para. 24 directly after the quotation I have set out above. McLachlin J. adds:

… the proper focus in determining the mens rea of fraud is to ask whether the accused intentionally committed the prohibited acts (deceit, falsehood, or other dishonest act) knowing or desiring the consequences proscribed by the offence (deprivation, including the risk of deprivation).

[86] McLachlin J. repeated this important point at para. 29, where she said:

The accused must have subjective awareness, at the very least, that his or her conduct will put the property or economic expectations of others at risk.

[87] There is no possibility, based on the factual and credibility findings made by the Hearing Panel, that a conclusion could be made that the appellant knew or desired to put his lender clients’ financial interests at risk when he chose not to tell them about the credits. Indeed, it is clear from the actions that the appellant undertook that his objective was exactly the opposite. He was trying to ensure that his lender clients’ financial interests were properly protected. That is the core question for any conclusion on the mens rea requirement of the offence of fraud. It simply cannot be made out in this case based on the factual and credibility findings made by the Hearing Panel. On that point, neither my colleague nor the Appeal Panel asserts that the Appeal Panel was entitled to interfere with those factual and credibility findings and yet that is precisely the result of the Appeal Panel’s conclusion.

[88] My colleague seeks to address this point, at least in part, by saying, at para. 66:

It also does not deal with the fact that a lender’s economic interests can be jeopardized even if the fair market value of the property is not affected. A mortgagee is not only interested in having sufficient security; it is also interested in ensuring that the mortgagor can make the mortgage payments as they become due.

[89] There was no evidence before the Hearing Panel that the issues surrounding the credits reflected, in any way, on the ability of the mortgagor to make the mortgage payments. The Law Society did not lead any evidence on this point. Indeed, the only evidence before the Hearing Panel relating to this issue was that none of the lenders involved in these transactions had raised any complaint regarding the conduct of the appellant. The other evidence was that all of the transactions had been carried out at fair market value. With respect, my colleague engages in speculative reasoning in making the point that she does as a way of trying to find some basis on which to conclude that there is even a possibility that the financial interests of the lenders were put at risk. However, even if one could get to that conclusion, it would be necessary to show that the appellant knew that there was a risk that mortgage payments might not be made, and thus knew that his lender clients’ financial interests might be at risk, and there is no evidence of that knowledge.

[90] My colleague sees a consistency between her conclusion on this issue and two decisions of this court, namely, Law Society of Upper Canada v. Talarico, 2014 ONSC 3423 and Law Society v. Trang Nguyen, 2015 ONSC 7192. In my view, neither of those cases assists on the issue here because both of those cases involved very different facts. For example, in Talarico, the transactions involved “flips” of thirteen properties at inflated prices – entirely different circumstances than are present here. Further, in terms of the factual and credibility findings that were relevant in that case, the court pointed out, at para. 45:

The Law Society’s case was compelling, and the appellant called no evidence, relying solely on the exculpatory parts of his own statement to the Law Society investigator.

The same cannot be said in this case. In particular, there is the very significant distinction that the appellant gave evidence in this case and his evidence was largely accepted by the Hearing Panel.

[91] In Trang Nguyen, the issue was also entirely different. In that case, the central issue was the duty of disclosure that a lawyer has to his/her client. It must be remembered that, in this case, the appellant was found guilty of professional misconduct for his failure to advise his lender clients of the credits. The issue here is whether he ought to also have been found guilty of professional misconduct on the basis of fraud.

[92] In the end result, the Appeal Panel may not have liked how the Hearing Panel viewed the actions of the appellant, or the conclusions that the Hearing Panel drew from those actions, but that is not a basis entitling the Appeal Panel to interfere. The proper question is whether those factual and credibility findings were reasonably open to the Hearing Panel on the evidence that they heard. Clearly they were. The Appeal Panel ought not to have interfered with them under the guise of finding that an error of law had occurred in an earlier stage of the analysis.

[93] I have not lost sight of the fact that the Appeal Panel found flaws in the approach taken by the Hearing Panel to the determination of whether fraud was made out. However, the fact that there may have been flaws in the approach cannot be used to ignore or completely undermine the factual and credibility findings made by the Hearing Panel. The approach of the Appeal Panel ought to have respected the admonition given by Abella J. in Newfoundland and Labrador Nurses’ Union v. Newfoundland and Labrador (Treasury Board), 2011 SCC 62, [2011] 3 S.C.R. 708, at para. 12, quoting with approval from Professor Dyzenhaus:

That is, 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.

[94] The Appeal Panel failed to accord that deference to the Hearing Panel. Unfortunately, my colleague sustains that failure. I would add that this is not just an exercise in semantics or in academic legal analysis. The ramifications for a lawyer between findings of professional misconduct based on a failure to disclose information to a client, and professional misconduct based on fraud, are enormous. I would add that the result of the Appeal Panel’s decision, as affirmed by my colleague, is that the appellant will once again face a disciplinary hearing on whether he committed professional misconduct rooted in fraud when there is absolutely no evidence that any fraud occurred.

[95] In the end result, I would allow the appeal, set aside the decision of the Appeal Panel, and reinstate the decision of the Hearing Panel.

[96] The appellant is entitled to his costs of the appeal in the requested amount of $5,000 inclusive of disbursements and HST.

Nordheimer J.

Released: September 14, 2017

CITATION: Law Society of Upper Canada v., Nguyen, 2017 ONSC 5431

DIVISIONAL COURT FILE NO.: 272/16

DATE: 20170914

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Then and Sachs JJ.

Nordheimer (dissenting)

BETWEEN:

The Law Society of Upper Canada

Applicant/Respondent

– and –

Cuong The Nguyen (also known as Steven Nguyen)

Respondent/Appellant

REASONS FOR JUDGMENT

THEN, SACHS and

NORDHEIMER JJ. (Dissenting)

RELEASED: September 14, 2017