7664 v. Registrar, Real Estate and Business Brokers Act 2002, 2013 CanLII 51146

Licence                        Tribunal                      

Appeal d'appel en

Tribunal matière de permis

DATE:

2013-08-15

FILE:

7664/REBBA

CASE NAME:

7664 v. Registrar, Real Estate and Business Brokers Act 2002

Appeal from the Notice of Proposal of the Registrar of Real Estate and Business Brokers Act 2002 to Revoke Registration.

Kelly Da Costa

Applicant

-and-

Registrar, Real Estate and Business Brokers Act 2002

Respondent

REASONS FOR DECISION AND ORDER

ADJUDICATOR:

Harinder Gahir, Vice-Chair

APPEARANCES:

For the Applicant:

JAMES MARENTETTE, Counsel

For the Respondent:

ROBERT MAXWELL, Counsel

JONATHAN MILLER, Counsel

Heard in Toronto:

May 6 to 10, 2013,with written submissions completed on June 28, 2013

Background

This is a hearing before the Licence Appeal Tribunal (the “Tribunal”) arising out of a Notice of Proposal¹ (the “Proposal”) issued by the Deputy Registrar (the “Registrar”), Real Estate and Business Brokers Act 2002 (the “Act”) on September 19, 2012. The Registrar proposed to revoke the registration of Mr. Kelly Da Costa (the “Applicant”) as a real estate salesperson.

The Applicant has been registered under the Act or its predecessor legislation since June 1989. He was registered as a salesperson with Re/Max Twin City Realty Inc. (the “brokerage”) from June 1996 to January 2009. He is currently registered with Re/Max Real Estate Centre Inc (“Re/Max)”.

The Applicant’s issues with RECO began in March 2010 when RECO received an anonymous complaint alleging the Applicant was involved in two questionable property transactions². The properties were located at Lowell Street and Beverly Street in Cambridge and the letter suggested that the transactions pertaining to the said properties constitute fraud. In response, RECO, under section 20 of the Act initiated an investigation against the Applicant. During this investigation, a third questionable transaction involving the Applicant came to the attention of RECO.

Evidence

The Registrar’s evidence included documentary evidence and testimony of eleven witnesses. The Applicant’s evidence included documentary evidence and testimony of five witnesses. The details of the three allegedly fraudulent property transactions are as follows:

Property located at Beverly Street

On November 23, 2007, the Applicant on behalf of the brokerage, entered into a listing agreement with JG to list for sale the property located at Beverly Street, Cambridge for $159,000.00³. At the same time, through 1517331 Ontario Inc. (151 Inc.), a corporation controlled by him⁴, the Applicant entered into an agreement of purchase and sale with JG to purchase the same property for $143,000.00⁵. This agreement was part of a guaranteed sale program, under which the Applicant agreed that if the property did not sell to a non-arm’s length purchaser prior to March 30, 2008 for more than $143,000.00 he would purchase it for that amount. The agreement provided for reductions in the list price periodically if the property did not sell.

The Applicant reduced the listing price on January 9, 2008 to $154,900.00 and further reduced it to $149,900.00 on January 26, 2008. In February 2008, the Applicant amended the listing to shorten the MLS listing from March 30, 2008 to February 13, 2008. He did not obtain JG’s signatures to amend this listing but rather put a notation “As per JG” on the amendment⁶. The Applicant accepted that he signed it without specific notice to JG or without her authorization. The Registrar alleged and the Tribunal found that the amendment meant that the prospect of having the property marketed was suddenly terminated, forty five days before the original agreed upon expiry date. This eliminated the possibility that his client would receive a price above $143,000.00 contained within the guaranteed sale program.

On March 28, 2008 a transfer was registered from JG to 151 Inc. for $143,000.00. While the Applicant was under a professional obligation to his client JG to market the property, on February 18, 2008 he entered into an agreement on behalf of his corporation, 151 Inc., as a seller to sell the property to MS for a significantly higher price of $179,000.00⁷ and when JG’s listing would have been active. The Tribunal noted that at this point in time the Applicant was not a registered owner of the property. The value, for which he flipped the property to his benefit, was $36,000.00 more than the price he was to pay to JG for 151 Inc.’s purchase.

The Registrar’s allegation is that if the Applicant sold the above property to MS at a higher than fair market value, he breached his fiduciary duty to his client, JG, who was to get the fair market value of the property. If the Applicant sold this property at an inflated price, in that scenario he defrauded the lender by inflating the price. In either case he compromised his professional obligations. The Tribunal agrees.

In both transactions regarding this property the Applicant neither paid the deposit nor handed over the agreement of purchase and sale to the brokerage as was professionally required of him under O.Reg. 567/05, s.13(1). The brokerage thus has no record of any sale for this property. The Applicant listed the property on the MLS system on February 20, 2008⁸ when he had on February 18 already entered into an agreement with MS to sell the property⁹. The Registrar alleged that for an honest and proper transaction, this after the fact listing made no logic. This kind of listing, as the Registrar alleged, is commonly created to defraud lenders, as financial institutions require valid listing as part of their due diligence.

The final transaction in this matter was completed on April 1, 2008. The circumstances surrounding financing, completion and post completion of this transaction are also questionable. The purchaser MS obtained 100% mortgage financing for his purchase from the Bank of Montreal (“BMO”)¹⁰. Normally, apart from other documents, the bank relies upon an MLS listing and an Agreement of Purchase and Sale. In this case, the Applicant prepared both documents reflecting a falsely inflated price.

Soon after the purchase of this property, the purchaser defaulted in his mortgage on October 18, 2009. The BMO, after unsuccessful attempts to sell this property, transferred the property to mortgage insurer, Canadian Mortgage and Housing Corporation (“CMHC”). CMHC ensures high-ratio mortgages and is responsible for losses experienced by the lenders as it relates to value. On February 15, 2010, CMHC sold this property under power of sale proceedings for $114,000.00. The parties agree that the Applicant through his company, 151 Inc., made a profit on this transaction of $38,922.10. At no point in time during his sale to MS did the Applicant disclose the information regarding this transaction to JG, the original seller. The Registrar’s Counsel alleged that the Applicant was under a professional obligation to work in the best interest of his client JG. However, he breached his professional obligation for the sake of his personal gain.

Property located at Hewat Street

On March 2, 2008 the Applicant represented SC to purchase property located at Hewat Street that was being sold under power of sale proceedings. SC purchased this property for the asking price of $177,000.00¹¹. The Applicant paid a deposit of $5,000.00 on behalf of his client. In addition to the deposit, the Applicant through 151 Inc., financed the transaction and registered a charge on the property for $168,150.00. Up to this point of the transaction, the allegation against the Applicant is that he did not submit the executed agreement of purchase and sale to his brokerage.

Less than two months after this transaction the Applicant listed the property on behalf of his client SC for a price of $249,900.00¹². This price was $72,900.00 over the purchase price that SC had paid and such an escalation in price over a short period is unrealistic.

The property could not sell for such a high price and therefore, the Applicant amended the listing agreement on three occasions to reduce the list price to $244,900.00, $239,900.00 and $236,900.00¹³. However, the Applicant was unsuccessful in selling the property at the reduced price. On August 5, 2008 he again amended the listing agreement to change the expiry date from September 30, 2008 to August 5, 2008. However, on August 6, the Applicant entered into a new MLS listing agreement with SC, and listed the property for an increased price of $249,900.00. The next day SC entered into an agreement of purchase and sale with EC and sold him the property for $245,000.00.

The Applicant justified the increase in the listing and sale price on the basis that the seller had made improvements in the property and decided to relist the property at a higher price. On a balance of probabilities, it is unrealistic that the seller could have made the improvements in a day and relisted the property at a higher price the next day. The Applicant could not sell the property for reduced listing price of $236,900.00 on August 5, 2008 and yet he relisted the property the next day for $249,900.00 and on August 7, 2008 sold it for $245,000.00.

The Registrar alleged that the Applicant inflated the price in order for the purchaser to obtain a higher mortgage amount when the property did not have sufficient value. Such an act, in the real estate industry, is normally considered mortgage fraud.

The purchaser completed the transaction on August 29, 2008 after he obtained 100% financing from First National Financial¹⁴. Soon after the completion of this transaction the purchaser failed to make mortgage payments and in December 2009 First National Financial, acting under power of sale proceedings, sold the property for $205,000.00. The Tribunal finds that the Applicant assisted the purchaser to get financing based on falsely escalated value of the property thereby compromising his professional integrity.

Property located at Lowell Street

On September 23, 2008, the Applicant on behalf of his brokerage, entered into a listing agreement with SD and DD (the “Ds”) and listed for sale their property located at Lowell Street, for $129,000.00¹⁵.

On October 2, 2008, the Applicant on behalf of 151 Inc. entered into an agreement as a seller to sell the property to EC for a price of $175,000.00¹⁶ when Ds’ listing would have been active. The Tribunal noted that at this point in time the Applicant was not a registered owner of the property. The price for which he sold the property was $78,000.00 more than the price he was supposed to pay to the Ds. The Applicant not only violated his professional obligations he also compromised his professional integrity.

Later on the same day of October 2, the Applicant through 151 Inc. entered into an agreement with the Ds, who were his clients, to purchase the property for a price of $97,000.00¹⁷. Earlier the same day, 151 Inc. had sold the property to EC for $175,000.00¹⁸ although at that time he did not have any interest in the property. As the Registrar alleged, and the Tribunal finds, by the mechanics of the two trades on the same day the Applicant profited $78,000.00 in this flip transaction. At the time Applicant sold this property to EC, he was also representing Ds and did not advise them that he had sold the property for $175,000.00 to his benefit.

The Tribunal finds that during the above transactions, the Applicant owed contractual and fiduciary duties to his primary clients, the Ds, to ensure that he acted solely in their best interests and did not pursue his personal interests ahead of his clients.

The confirmation of acceptance indicates that the agreement of purchase and sale between 151 Inc. as purchaser and the Ds as sellers was completed at 8.00 pm; merely seven hours after 151 Inc. entered into an agreement to sell the same property to EC.

The Applicant provided disclosure to the Ds pursuant to section 32 of the Act, indicating that 151 Inc. planned to renovate the property and sell it at an increased price. Given that 151 Inc. sold the property before purchasing it, renovations were not possible and therefore the section 32 disclosure was false. More importantly the Applicant breached his contractual and fiduciary obligations by not disclosing to the Ds that he already had a purchaser for the property that was willing to pay $78,000.00 higher than he was willing to pay.

The Tribunal finds that if the Applicant sold the property to EC at a fair market value, he breached his fiduciary duty to his clients, the Ds, who were entitled to the fair market value of the property. On the other hand, if the Applicant sold this property to EC at an inflated price, he assisted EC to defraud the lender in order for EC to obtain financing based on the manipulated price. In either case, he compromised his professional obligations.

On November 25, 2009, the lender, Paradigm Quest, acting under power of sale proceedings, listed the property for $110,500.00 and on January 14, 2010 sold the property for $102,500.00¹⁹. The parties agreed that the Applicant through his corporation illegitimately made a profit on the transaction in the amount of $76,778.93.

Evidence in support of the Applicant

The Applicant’s spouse CD testified in support of the Applicant. She was initially registered under the Act in 1989 as a salesperson. Along with the Applicant she is co-owner of the Da Costa Group (the “Group”), which has twelve realtors as associates and two administrative assistants. As she testified, she runs the operations of the Group and monitors sales people, coaches associated realtors on weekly basis, and meets with clients. In addition, she attends calls from the lenders, clients and other agents. After being licensed in 1989 she worked as a realtor for a few years. She obtained her re-registration about eleven years ago. In 2008, she was actively selling and shared an assistant with the Applicant. At that point in time, she was not involved in management of the business as she had been busy with sales and did not involve herself in the Applicant’s business. She testified that in 2008, the Applicant alone did 300 transactions and as a team they did even more.

CD testified that the “three transactions” triggered change in her and the Applicant’s work structure in late 2010. CD predominantly manages the business and every single telephone call in her group goes through her. She knows the details of every transaction the Applicant has been involved with and reviews every single transaction in the office.

Talking about the Applicant’s state of mind, CD stated that the Applicant has been taking counseling because he does not realize his success and has low self-esteem. She further testified that the Applicant is a chronic alcoholic. As a result of the counseling there has been a change in him and now he would analyze things better.

Testifying about Applicant’s future conduct she insisted that as a co-owner of the Group, she will not let the Applicant engage in what he is not allowed or would ruin the business.

CD agreed with the Registrar’s Counsel that even with her new measures the Applicant will be in the field and deal with clients and mortgage brokers in her absence. However, she insisted that now the Applicant’s and her calendars are synchronized. Therefore, she knows who the Applicant deals with.

Support from Broker of Record

The Applicant has support of his broker DM who is a co-owner of Re/Max with whom the Applicant is associated. Re/Max has eleven offices located at Kitchener, Cambridge, Milton, Fergus Shelburne, Brampton and Erin. DM has his offices in Cambridge and Guelph and spends 50% of his time in Cambridge. He further testified that he has known the Applicant for eighteen years as they previously worked in the same company, Twin City. At one point in time they both worked to sell for the same builder. DM testified that there have been no complaints in this office against the Applicant. DM and the Applicant are family friends and have been on family vacations together.

Although, DM became aware of the Applicant’s “three transactions” in 2008 but, looking at his global record, would not change his opinion about the Applicant’s honesty and integrity. DM was willing to supervise the Applicant by reviewing Applicant’s files before those are processed by the administration.

Under cross-examination, DM testified that brokerage gets only 5% of the commission out of the Applicant’s split and there is a cap on the maximum the Company could charge. There is another revenue stream for the company and DM does not want to ruin his company for the Applicant’s mistakes. If the Applicant is not with his brokerage, a lot of realtors working with the Applicant’s team would come directly under DM or become independent and the company will make more profit. He insisted that although he does not follow realtors in the field but can certainly review the documentation.

Support from General Manager of Brokerage

The Applicant also has support of BS who is the General Manager of Re/Max Twin City Inc. BS has been in the industry for the last thirty years and has known the Applicant for the past twenty five years. He has worked with the Applicant from the same offices at Twin City for fifteen years. As a Manager, BS supervised the activities of the Applicant. Talking about the general reputation of the Applicant, BS testified that it is quite high and the Applicant has had a loyal following from his clients and is extremely successful because of it.

BS and the Applicant not only share a professional relationship but are also close family friends. He testified that he was aware of the three questionable transactions involving the Applicant and believed those transactions were out of character as the Applicant has professional integrity.

Under cross-examination, BS testified that he was supervisor manager of the office at the time when the Applicant was involved in the three questionable transactions. He agreed that he was unable to find paperwork related to the Applicant’s three questionable transactions. He stated that salespersons do not have to forward all the deals to the broker unless the brokerage is involved. The Tribunal finds that the brokerage was indeed involved in these three transactions as it is apparent from the agreements of purchase and sale²⁰.

Psychological Assessment

The Applicant presented his psychological assessment report at the hearing that illustrates the Applicant to be undergoing depression, intense anxiety and interpreting things too narrowly. The report states that he was emotionally distraught when asked to talk about the present legal situation and the potential consequences to his career.²¹

The report describes the Applicant’s values and attitudes to have been significantly affected by his childhood experiences in an immigrant family. Many of these values and attitudes are healthy and serve him well. However, the same values and attitudes have also caused him to have a somewhat narrow focus on the concept of work ethic, affecting the way he does business and causing him to neglect red-flags which he should have prudently observed.²²

According to the report, the Applicant lacks internal deliberation, tends to act hastily and may speak or act without considering the consequences. It is probable he does not actively plan and organize tasks, preferring a more spontaneous style. He may even appear to act impulsively. Although this may serve him well when he needs to make quick decisions or act spontaneously, this characteristic makes him vulnerable to making (poor) decisions before he has thought through a problem or situation.²³

The report characterizes the Applicant to prefer familiarity as opposed to being interested in new ways of doing things. Therefore, he might be perceived as being closed-minded with regard to adopting new ideas and approaches to new areas of his life, including work. It is probable he narrowly focuses his resources on a limited range of topics.²⁴

The psychological report predicts that the symptoms of depression and anxiety will likely abate during the course of psychotherapy. There is no evidence of a serious mental illness or a personality disorder that can predispose the Applicant to aggressive or illegal behaviour or which caused his misconduct. He is capable of change in this regard.²⁵

Based on the report, the Applicant was first psychologically assessed in January 2013 and continues to receive regular psychotherapy sessions. He has benefitted from psychotherapy and gained insight into his personality. The prognosis for the Applicant is very favourable.²⁶

Law

Registration

10. (1) 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,

(ii) the past conduct of the applicant or of an interested person in respect of the applicant affords reasonable grounds for belief that the applicant will not carry on business in accordance with law and with integrity and honesty, or

(2) A registration is subject to such conditions as are consented to by the applicant or registrant, as are applied by the registrar under section 13, as are ordered by the Tribunal or as are prescribed.

Refusal to register, etc.

13. (1) Subject to section 14, the registrar may refuse to register an applicant or may suspend or revoke a registration or refuse to renew a registration if, in his or her option, the applicant or registrant is not entitled to registration under section 10.

Hearing

14. (5) If a hearing is requested, the Tribunal shall hold the hearing and may by order direct the registrar to carry out the registrar's proposal or substitute its opinion for that of the registrar and the Tribunal may attach conditions to its order or to a registration.

ANALYSIS

The facts in this case are not in dispute; rather it is the possible outcome that each party seeks. The Registrar asked for revocation of the Applicant’s registration whereas the Applicant’s Counsel pleaded for suspension and imposition of conditions for reinstatement.

The Applicant at the onset of the hearing admitted his misconduct in all alleged three instances. It goes to the Applicant and his Counsel’s credit that Counsel accepted that the Applicant breached his fiduciary duty towards his clients. Counsel submitted that double dealing with one’s client is worse than a mortgage fraud. He submitted that acting judicially the Tribunal must consider the Applicant’s past conduct whether good or bad. He insisted that nobody in any walk of life judges a person or institution for one act alone. Parents do not do it, neither do countries, and nor does the criminal system. He insisted that same principle should apply in case of regulatory offences.

During his twenty-five year career, of the several thousand transactions the Applicant was involved with, he compromised his professional ethics in three transactions in 2008. Counsel further submitted that about six years ago the Applicant’s conduct was questionable. Perhaps in October 2008 when the Applicant’s misconduct was discovered, it would be reasonable to conclude that he was not going to act in accordance with honesty and integrity in the future.

Applicant’s Counsel cited Brenner whereby the Divisional Court dealing with the issue of past conduct held:

…..It may be that the Tribunal, if it heard the matter afresh and give effect to the principles that we have laid down in our reasons, might now be able to conclude that the past conduct of Brenner no longer affords reasonable grounds for belief that he will not carry on business in accordance with law and with integrity and honesty, despite his lengthy criminal record. Such a conclusion might be reached after a consideration of his conduct during the past year and if Brenner adopts a more forthright attitude in his evidence regarding the conviction for fraud in Michigan or gives a credible explanation as to why he refused to reveal to the Tribunal the nature of the offence to which he pleaded guilty.

Applicant’s Counsel submitted that the Court in Brenner took into consideration only one year of past behaviour in favour of Brenner whereas in the present case more than five years have lapsed since the Applicant’s misconduct. He stated that applicant’s conduct over the last almost five years needs to be a critical consideration.

Counsel submitted that considering Applicant’s misconduct, the twenty years before that and five years after, there is no longer a ground to justify revoking his licence as the Applicant did not otherwise violate the Act. He further stated that the Applicant is deterred, remorseful and has demonstrated in the last five years that he can and will carry on his business with honesty, integrity and in accordance with the law. Applicant’s Counsel further submitted that the hearing process must have a deterrent effect on the Applicant. Furthermore, he submitted the Applicant has shown remorse and has put together $114,000.00 in his Counsel’s trust account to pay back the victims.

Although the Applicant’s Counsel wanted the Tribunal to consider the Applicant’s clean record after 2008 and his expression of remorse, Counsel rightly agreed that a certain period of time away from the industry is warranted. To achieve that objective, he suggested a period of suspension of the Applicant’s registration and that for reinstatement, the Applicant must:

1. Pass every transaction, in which he is involved, through his broker.

2. Report to RECO, on a monthly basis, the transactions he is involved in.

3. Be forbidden to trade in real estate on his own for a certain period of time.

4. Make full restitution to his clients and the lenders,

5. Complete a course in agency law.

In response, the Registrar’s Counsel submitted that Brenner went for a rehearing and the Tribunal declined Brenner the licence. He further stated that the passage of time is a factor that could be taken into consideration; however, it has not been a significant factor in major mortgage fraud cases.

The Registrar’s Counsel submitted that if the Applicant was indeed remorseful he could have voluntarily made the restitution soon after his misconduct and not waited until the hearing of this matter. Furthermore, in his written submission the Registrar’s Counsel stated that the Tribunal does not have jurisdiction to grant restitution.

Does the Tribunal have jurisdiction to grant restitution?

Dealing with the issue of whether the Tribunal has jurisdiction to grant restitution, the Registrar’s Counsel relied on Registrar, Board of Funeral Services v. Carl J. Schmolinski, whereby the Divisional Court held that the Tribunal does not have the statutory authority to award monetary compensation to a complainant. He stated it would be a breach of the fundamental rules of natural justice if the Tribunal awarded restitution without providing a hearing to the aggrieved persons.

In response to the Registrar’s position, the Applicant submitted that in Schmolinski the registrant must pay the restitution and that the beneficiary of the order may enforce the same. In that case the “victim” had applied to the Complaints Committee of the Board of Funeral Services for a remedy based on his complaint that expensive jewelry belonging to the deceased had gone missing. The Complaints Committee found the funeral home to be at fault but held that it had no power to order compensation to the complainant. The Tribunal held that the funeral home was at fault and that the Complaints Committee had the jurisdiction to award compensation, and therefore the Tribunal did have power to order compensation to the complainant, and so ordered. The Divisional Court found that the Tribunal did not have such jurisdiction and reversed the order.

Section 14(5) of the Act provides the Tribunal jurisdiction to deal with these appeals. It states:

If a hearing is requested, the Tribunal shall hold the hearing and may by order direct the registrar to carry out the registrar’s proposal or substitute its opinion for that of the registrar and the Tribunal may attach conditions to its order or to a registration.

Registrar’s Counsel submitted that the construction of Section 14(5) of the Act is clear as it does not allow for restitutionary relief. He relied on Dufferin Paving & Crushed Stone Ltd. V. Anger and Derbyshire, 1939 CanLII 9 (SCC), [1940] S.C.R. 174, Davis, J., speaking for the majority with respect to rule of construction, says at p. 181:

The rule of construction is plain: “if the words of the statute are in themselves precise and unambiguous, then no more can be necessary than to expound those words in their natural and ordinary sense. The words themselves alone do in such case best declare the intention of the lawgiver.” This is rule declared by the Judges in advising the House of Lords in the Sussex Peerage case (1884), 11, Cl. & Fin. 85 at p. 143, 8 E.R. 1034.

Registrar’s Counsel further relied upon Bell Express Vu Limited partnership v. Rex, 2002 SCC 42, [2002] S.C.R. 559, whereby the Court adopted Elmer Driedger’s definitive formulation, found at p. 87 of his Construction of Statutes (2nd ed. 1983), which states:

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of the parliament.

The Tribunal agrees with the Registrar’s Counsel that there is no express provision in the Act that permits the Registrar and, on appeal, the Tribunal to order restitution. The Tribunal agrees that it is the creature of statute and has no inherent jurisdiction. It must find an express power from the statutory scheme and language of the Act to make orders of restitution. The Tribunal agrees that if the legislature has not conferred a specific power on the Tribunal that power cannot be presumed.

Furthermore, Section 41 of the Act expressly deals with restitution awards, which reads:

41. (1) If a person is convicted of an offence under this Act, the court making the conviction may, in addition to any other penalty, order the person convicted to pay compensation or make restitution.

(2) If an order is made in a person’s favour under subsection (1) and that person has already received compensation or restitution from an insurer, the person ordered to pay the compensation or make restitution shall deliver the amount to the insurer.

The above provision deals with situations where there are charges under the Act pursuant to the Provincial Offences Act. The Tribunal agrees that the importance of these provisions is that the legislature turned its mind specifically to when restitution orders would be available and chose to expressly confer the power of restitution only in situations wherein there was a prosecution and a finding of guilt by the Ontario Court of Justice. As a matter of statutory construction, the obvious implication is that the legislature did not intend to confer the jurisdiction to order restitution to either the Registrar or the Tribunal. If the legislature wanted to confer the restitution powers on the Registrar or the Tribunal, it could have used clear language to do so.

Does the Tribunal have jurisdiction to impose non-binding condition to pay restitution?

Applicant’s Counsel in his written reply submissions submitted that the Registrar and the Tribunal have the jurisdiction to impose conditions on the licence of the Applicant, or suspend the licence and impose conditions on its reinstatement. He further sought an order suspending the Applicant’s licence for a period of time which the Tribunal deems appropriate and imposing conditions. The Applicant must satisfy those conditions before reinstatement of his registration. Those conditions may include completion of education programs and the payment of restitution to those who suffered losses. This would not be a mandatory enforcement order; the Applicant neither has to pay the restitution if he does not want to nor can he be forced to. The only consequence of failing to pay is that his licence will stay suspended.

In response, the Registrar’s Counsel in his sur-reply submissions submitted that the Divisional Court closed the door on the Tribunal to grant restitution. Simply resorting to a condition cannot possibly, particularly given the similar statutory provisions in Schmolinski, confer jurisdiction that otherwise would not be available. He further stated that the old legal aphorism of “one cannot do indirectly what one cannot do directly” is appropriate.

The Tribunal finds that the legislative provisions in Schmolinski and the present matter are different. Registrar’s Counsel based his submissions on a mistaken belief that in Schmolinski, the Tribunal supported its order of restitution on legislative provisions that are almost identical to the Tribunal’s power in this case. In Schmolinski the Divisional Court’s decision overturned the Tribunal’s order of restitution and relied upon the jurisdiction of the Tribunal as set out in Subsection 14(9) and (10) of the Funeral Directors and Establishments Act, which provides:

(9) After holding a hearing, the Tribunal may by order direct the Complaints Committee to carry out the proposal or refrain from carrying out the proposal and to take such action as the Tribunal considers the Complaints Committee ought to take in accordance with this Act and the regulations and, for such purposes, the Tribunal may substitute its opinion for that of the Complaints Committee. (emphasis added)

The Tribunal finds that the above provision is not identical to Subsection 14(5) of the Act that confers jurisdiction to the Tribunal in REBBA matters. This provision provides:

If a hearing is requested, the Tribunal shall hold the hearing and may by order direct the registrar to carry out the registrar’s proposal or substitute its opinion for that of the registrar and the Tribunal may attach conditions to its order or to a registration.

The language of both statutes is similar but not identical. In the Funeral Directors and Establishments Act, the Tribunal’s jurisdiction is limited to making dispositions that the Tribunal considers the Complaints Committee ought to take in accordance with that Act. However, in Real Estate and Business Brokers Act 2002 there is no such authority. The legislature could have mirrored the wording of the relevant provisions of the Funeral Directors and Establishments Act if it intended to restrict the powers of the Tribunal in REBBA matter.

In appropriate circumstances the Tribunal may include in the conditions of registration, compliance of restitution orders imposed by courts. The Tribunal, dealing with the issue of restitution in Tulloch (Re) [2009] O.L.A.T.D. No. 329 held:

It is not because of financial responsibility that the Applicant must begin to address the restitution order. Rather, it is the final step in his rehabilitation. To keep the public trust, the Applicant must take concrete steps to address the last remaining vestige of his criminal behaviour. The Tribunal is of the view that the best way in which this may be achieved is by putting a repayment condition on his registration. In considering the terms of a repayment condition, the Tribunal has taken into account the submission from the Applicant indicating a willingness to make repayment on the basis of his net income.

Pursuant to the authority vested in it by s. 14 (5) of the Act, the Tribunal orders the Registrar to register the Applicant with the following conditions attached to the registration:

1. Commencing with his registration and extending for a period of five years, the Applicant shall make payment on the restitution order in the amount of 10% of each commission cheque earned by the Applicant up to a total of $100,000.00 of earned commissions in any one year and shall make payment of 20% of any amount of earned commissions in excess of $100,000.00 in any one year.

Registrar’s Counsel submitted that it should be obvious that the Tribunal’s power to substitute its opinion for that of the Registrar must relate to the opinion of the Registrar. The Registrar is not the trier of fact and therefore not required to hold a hearing, to afford any person an opportunity for a hearing or to make oral submissions before it prior to issuing a proposal. The Tribunal is of the view that since it is the trier of fact, and the Act does not put restriction on its power to impose conditions, it has wider discretion in terms of imposing conditions of registration.

The Tribunal is of the view that there is no restriction on the conditions that can be attached to a licence, with the exception that the Tribunal cannot make a mandatory, enforceable order requiring the Applicant to pay restitution. Only a court can do that. In this case, even a non-binding condition requiring restitution is not appropriate as the Tribunal is not the forum for such orders.

Revocation versus Suspension

Suspension is granted in situations where the gravity of the misconduct is not immense and public interest is protected by putting conditions on the registration. Analyzing the jurisprudence, the Tribunal is of the view that it must consider specific factors that may be relevant in professional misconduct cases. Those factors include:

1. The existence or absence of a prior disciplinary record:

Prior to three instances of serious misconduct in 2008 the Discipline Committee of RECO, in December 2001, found the Applicant in breach of then Code of Ethics and fined him $5,000.00. The Committee held:

…. sharing the relevant period under review at the hearing, Da Costa was negligent in the manner in which he retained and stored confidential client information such that he failed to “protect the public from fraud… in connection with real estate transactions.”

The Applicant appealed the decision to the Appeals Committee that lowered the fine to $3,500.00 and upheld the finding of the Discipline Committee. Certainly, past conduct cannot be limited to only one historical period of conduct, but needs to include a review of all past conduct, the more recent of which will be more persuasive in determining the propensity for future conduct²⁷. In this instance, this incident happened more than twelve years ago and the Applicant had a clean record until 2008. Therefore, this incident alone should not heavily weigh against the Applicant.

2. The existence or absence of remorse, acceptance of responsibility or an understanding of the effect of the misconduct on others:

It goes to the Applicant’s credit that he accepted responsibility of his conduct and expressed remorse. He put over a hundred thousand dollars in his Counsel’s trust account to pay restitution if the Tribunal so orders. However, as the Registrar’s Counsel submitted this remorse falls short. It seems to be conditional on the Applicant being registered. The Applicant would have been in better footing had he voluntarily made restitution soon after he realized he did something wrong or made it before coming to the Tribunal.

3. Whether the registrant has since his recent misconduct complied with his professional obligations:

The Tribunal noted that the Applicant’s recent misconduct of 2008 came to the attention of RECO in March 2010. The Tribunal is cognizant that the Applicant has not compromised his professional obligations since late 2008. However, one can say that the Applicant has been under the watchful eye of RECO since it discovered his misconduct. The Applicant thereafter has not had sufficient unmonitored professional activity. Therefore, the Applicant’s unblemished record since late 2008 cannot be given considerable weight.

4. Nature of misconduct:

The nature of misconduct and its consequences may be assessed in light of the Tribunal’s decision in Re Nagy. Reviewing both the Act's legislative history and the case law, Vice-Chair Macklin concluded that the past criminal conduct of any applicant "... must be assessed in relation to the ability of the applicant to conduct the business of being a realtor and serve the interests of consumers."²⁸ In doing so, he held that evidence as to the nature of the offence, the extent of the record and the applicant's past conduct in the industry are all relevant factors.

Similar criteria are relevant in serious professional misconduct cases. In the Applicant’s case the misconduct is very serious. He not only failed to honor his professional and fiduciary duties towards his clients in two instances, he also misled the financial institutions. Due to the three instances of serious misconduct this factor should weigh against the Applicant.

5. The extent and duration of the misconduct:

The Applicant orchestrated sophisticated schemes to defraud his clients and the lenders in three instances and profited immensely in two instances. Although, the duration of misconduct is over a short period; this factor should weigh against the Applicant because of the serious extent of the misconduct.

6. The potential impact of the registrant’s misconduct upon the public:

Mortgage fraud is a very serious act that can threaten the integrity of this regulated profession. The banks, apart from other documents, rely on the MLS and Agreement of Purchase and Sale for approving mortgage financing. Any manipulation of the price affects not only the banking system but also provides an inaccurate impression of market value of the properties to the consumers; thereby destabilizes the real estate market.

As held in Re Dahan²⁹, Vice-Chair Diamond stated that the Act is consumer protection legislation that provides the public with some degree of protection and confidence in its dealings with realtors and salespersons. Realtors must obey the law and act with honesty and integrity. The Tribunal found three instances where the Applicant's conduct has fallen below the standard expected of real estate salespersons. Therefore, this factor must also weigh against the Applicant.

7. Whether the registrant has support of his broker of record and broker of record has assured to monitor the registrant:

The fact that the Applicant has unconditional support of his broker and his broker of record has assured to monitor the Applicant is a positive factor and must be accorded considerable weight in favor of the Applicant.

8. Will conditions safeguard public interest:

The Applicant’s wife testified that the Applicant is a chronic alcoholic and is undergoing psychological counseling. Moreover, the seriousness of the Applicant’s misconduct does not warrant conditions to be attached to the registration. In Nagy (Re)³⁰ Vice-Chair, Richard Macklin held that the Tribunal has taken a consistent view that if the registrant’s misconduct in question is in relation to acts of dishonesty such as fraud or any financial dishonesty, it will be difficult for a registrant facing revocation to maintain registration. That is because acts of dishonesty by definition bear directly on the prospect of the registrant being able to conduct the business of real estate in accordance with law and with integrity and honesty.

Considering all the factors, on balance, the Tribunal finds that the mitigating factors are overshadowed by the serious nature of the Applicant’s misconduct. His alcohol addiction and psychological condition further leads to the belief that the Applicant will not conduct business with honesty, integrity and in accordance with law even if his registration is suspended and conditions are imposed.

The Tribunal is considerate of the Applicant’s struggles with depression, anxiety and alcoholism. The Tribunal commends the Applicant for undergoing psychotherapy in an attempt to overcome these problems. The Tribunal gives weight to the psychological assessment that the Applicant’s symptoms will remit during the course of psychotherapy as well as the favourable prognosis. However, taking into consideration that he began psychotherapy in January 2013, it is too early to make an absolute determination of his recovery.

Due to the foregoing, a period of time apart from the industry during which the Applicant can reassure the industry and the regulator that he is once again suitable to hold a registration is in the Tribunal’s opinion the most appropriate. As the Registrar’s Counsel submitted the Applicant may reapply for registration in the future in accordance with section 17 of the Act, at which time the Registrar will assess his suitability.

ORDER

Pursuant to the authority vested in it under the provisions of the Act, the Tribunal directs the Registrar to carry out the Notice of Proposal dated September 19, 2012.

LICENCE APPEAL TRIBUNAL

Harinder S. Gahir, Vice-Chair

Released: August 15, 2013

Footnotes

1. 1Exhibit 1
2. 2Exhibit 8, tab 11a
3. 3Exhibit 4 tab1
4. 4Exhibit 4, tab 10
5. 5Exhibit 4, tab 14, page 195
6. 6Exhibit 4, tab 1, page 22
7. 7Exhibit 4, tab 5
8. 8Exhibit 4, tab 2, page 25
9. 9Exhibit 4, tab 6, page 92
10. 10Exhibit 4, Tab 6, page 116
11. 11Exhibit 5, tab 1
12. 12Exhibit 5, tab 3
13. 13Exhibit 5, tab 3
14. 14Exhibit 5, tab 7, page 163
15. 15Exhibit 3, tab 1
16. 16Exhibit 3, tab 5
17. 17Exhibit 3, tab 2, page 21
18. 18Exhibit 3, tab 5
19. 19Exhibit 3, tab 13
20. 20Exhibit 4 - tab 5, Exhibit 5 - tab 1 and Exhibit 8 – tab 10
21. 21Exhibit 11
22. 22Exhibit 11
23. 23Id
24. 24Id
25. 25Id
26. 26Id
27. 27Chung (Re) [2011] O.L.A.T.D. No. 265
28. 28[2009] O.L.A.T.D. No. 325
29. 29[2006] O.L.A.T.D. No. 222
30. 30supra note 28