Licence Appeal Tribunal

Safety, Licensing Appeals and Standards Tribunals Ontario

Tribunal d’appel en matière de permis

Tribunaux de la sécurité, des appels en matière de permis et des normes Ontario

Date: 2018-01-11

Appeal from a Proposal of the Registrar under section 13 of the Real Estate and Business Brokers Act, 2002, S.O. 2002, c. 30, Sch. C to Refuse a Registration

Between:

Allan Douglas Shepheard

Appellant

and

Registrar, Real Estate and Business Brokers Act, 2002

Respondent

DECISION AND ORDER

ADJUDICATOR:

Marisa Victor, Member

APPEARANCES:

For the Appellant:

Self-represented

For the Respondent:

Jay Holden Blair, Counsel

Place and date of hearing:

Ottawa November 14-15, 2017

REASONS FOR DECISION AND ORDER

A. Overview:

1Mr. Shepheard was a licensed real estate agent from 1995 until 2014 when his licence was revoked by the Registrar. That decision was confirmed by this Tribunal in 2014. At the time of the revocation, he had extensive debts for unpaid bills, business debts, he owed former clients who had complained about him, he owed money to Revenue Canada and he had outstanding fines ordered by the Ontario Court of Justice and by the Discipline Committee of the Real Estate Council of Ontario (RECO).

2In January 2016, the appellant re-applied for his real estate sales licence after waiting the minimum wait time required by the statute. As a re-applicant, he is now required to show that there is new or other evidence or a material change in his circumstances. The Registrar argues that even if the appellant meets that test, he should still be denied a licence on three grounds:

a. The appellant’s past conduct shows that he will not act within the law, with honesty or integrity in the future;

b. The appellant cannot reasonably be expected to be financially responsible in the conduct of his business considering his debt and financial position; and/or

c. The appellant made a false statement in his application.

3Mr. Shepheard believes that his commitment to his daughter and the adjustments he has made in his personal life show that he is a changed man. He wants his licence so he can return to selling houses which he believes is his best chance at paying off his substantial debts.

4The Real Estate and Business Brokers Act, 2002 (the Act) is a consumer protection act. The licensing regime allows some level of comfort to members of the public who purchase a home, often the single biggest purchase they will make in their life. The requirement that an agent comply with the law and act with honesty and integrity are vitally important to the system as a whole and to the individual people who interact one on one with real estate agents.

5After reviewing the evidence, I find Mr. Shepheard has provided new evidence to allow his application to be considered but that he is unfit for licensing. However, the Registrar has met its burden to show that there are reasonable grounds to believe Mr. Shepheard will not act with integrity, honesty and within the law.

6I confirm the Notice of Proposal to refuse a licence.

B. ISSUES:

7The Tribunal must decide if the registrar’s Notice of Proposal to refuse the appellant’s registration should be carried out or if the Tribunal should substitute its own opinion. To answer this question, I must decide the following issues:

a. Is the appellant eligible to reapply for registration:

i. Has the required time passed since the appellant’s registration was revoked; and

ii. Is there new or other evidence or have his material circumstances changed?

b. If the appellant can apply, is he unfit for registration:

i. Is it the case that the appellant cannot reasonably be expected to be financially responsible in the conduct of his business considering his debt and financial position; or

ii. Does the appellant’s conduct afford reasonable grounds to believe that he will not carry on business in accordance with law, integrity and honesty, considering his past conduct; or

iii. Did the appellant make a false statement in his application for registration?

C. RESULT:

8For the reasons that follow, I find that:

a. The appellant is able to reapply for registration. The required time has passed and there is new or other evidence that was not previously considered.

b. The proposal by the Registrar to refuse the appellant’s registration should be carried out as there are reasonable grounds to believe the appellant will not act within the law, with integrity or with honesty.

D. Background Information:

9In 2014, the respondent issued a Notice of Proposal to revoke the appellant’s licence. Mr. Shepheard appealed that decision to this Tribunal and a hearing was held. On December 29, 2014, the Tribunal directed the Registrar to carry out the proposal. That decision can be found at 8650 v Registrar, Real Estate and Business Brokers Act, 2012, 2014 CanLII 79510.

10The Registrar issued the Notice of Proposal in this matter on June 1, 2017. The Notice of Proposal contains significant particulars which were agreed to prior to the hearing. These particulars can be summarized as follows:

a. The appellant’s registration background from his first registration as a salesperson in February 1995 to the revocation on December 29, 2014;

b. The appellant’s three previous bankruptcy proceedings in 1993, 1998 and 2002, the last bankruptcy being discharged in 2010. There was also a consumer proposal in 1997;

c. From 2010 to 2014, the Writs of Execution issued against the appellant totalling approximately $500,000;

d. Previous conditions of registration entered into on November 25, 2010 which the appellant did not fulfill;

e. The appellant’s 2014 rental arrears debt amounting to $11,200 which was not disclosed to the Registrar within the prescribed time period;

f. The appellant’s 1986 and 1990 criminal convictions for attempted fraud and trafficking in narcotics;

g. That the appellant was the subject of disciplinary complaints before the RECO in 2001, 2011, 2012, 2013 and 2014. Because of the findings against him, the appellant was required to take a course and pay fines, both of which remain outstanding;

h. That the appellant was convicted in 2013 of three counts under the Provincial Offences Act for contravening the Real Estate and Business Brokers Act, 2002. He was ordered to pay restitution, which he did, but he has made only minimal payments towards his fine of $30,000;

i. That the appellant provided false and misleading information in his 2012 application for registration including failure to disclose past bankruptcies; and the judgment debt registered against him;

j. That the appellant failed to disclose that he worked for Rob Vivian coaching in the 2010 and 2012 applications; and

k. A listing of the appellant’s known debts to date.

11At the start of the hearing, on agreement, the full particulars summarized above were read into the record.

E. ISSUE 1 - The appellant is eligible to re-apply for registration:

I. Law

12The appellant’s registration had previously been revoked. Under s. 17 of the Real Estate and Business Brokers Act, 2002 (the Act), to reapply for registration, the appellant has the burden to show on a balance of probabilities that:

a. The required time has passed since his registration was revoked; and

b. There is new or other evidence or his material circumstances have changed.

13Ontario Regulation 567/05 under the Act, specifies that the appellant needed to wait 12 months before re-applying to get his licence.

II. Evidence

14In this case, there is no argument that the appellant waited at least 12 months before reapplying. His registration was revoked on December 29, 2014 and he reapplied in January 2016, a few days after the expiry of the 12-month waiting period.

15The only question remaining is whether the appellant has presented new or other information or his material circumstances have changed.

16The appellant presented the evidence at his hearing:

a. Letters of recommendation and emails of support;

b. Employment information concerning his company, Majestic Property Management, lawn care and snow removal contracts and his employment with Rob Vivian coaching;

c. Residential lease agreement;

d. Updated debt information including: cars on credit, City of Ottawa fine payment, Mindware Academy debt, 1408642 Inc. debt, and the Capital Advance debt reduction plan;

e. Revised 2012 Canada Revenue Agency tax assessment;

f. Five-year debt repayment plan; and

g. His own testimony regarding changes he has made to his lifestyle.

17Mr. Shepheard stated that he had obtained employment totalling about $100,000 per year which was a combination of his property management revenue ($60,000) and coaching ($40,000).

18He stated that he had enrolled his daughter in a private school that could assist her with dyslexia and that he had paid $15,000 per year for tuition totalling $50,000 over several years. She has now graduated.

19He also testified that he expected to receive between $50-80,000 from a divorce settlement that was forthcoming but he didn’t know when. He anticipated receiving these funds for child support for his daughter and that he would use the money to pay off some of his debts.

20He testified about his new fiancée and his stable home environment. He stated this was a change from his past when he was a workaholic and lived a lavish lifestyle. Now he works running a property management company that primarily does grass cutting and snow removal. He testified that he had worked hard over the last three years and that he had learned some difficult lessons about living a better life. He stated that being registered as a real estate agent is a privilege that should not be abused. He added that he now abstains from alcohol. Finally, he expressed that he is a changed man.

21Some of the appellant’s financial debts were set out in the Notice of Proposal. Throughout the hearing, these numbers were added to and amended. The appellant had also obtained agreements from some parties to reduce the amount owed. In at least one case, Capital Advance, the agreement to reduce the debt is dependent on him obtaining his registration to sell real estate and beginning payback. Taking those anticipated reductions into account, the appellant’s debts appear to be:

a. Capital advance (originally $222,000) $ 50,000.00

b. Unik, propane $ 2,400.00

c. 1408642 Ontario Inc. $ 23,418.00

d. Easy financial $ 2,116.05

e. Judgment debt to Andrew Drake/Sheree Johnston $ 20,000.00

f. Revenue Canada $ 68,222.64

g. Revenue Canada HST $ 89,972.99

h. Revenue Canada source deductions $ 24,369.79

i. RECO discipline fine $ 20,000.00

j. Ontario Court of Justice fine $ 29,365.00

k. Cars on credit $ 2,296.89

l. Cashflow recovery $ 2,860.00

m. Mindware Academy $ 9,650.00

n. National Capital Mortgages $ 16,124.59

22The appellant also called on Tony Fragiskos to testify about the appellant’s five-year repayment plan. Mr. Fragiskos was once a real estate agent and then developed a cash-flow service for agents. He holds no accounting certifications nor is he a financial advisor.

23Mr. Shepheard provided Mr. Fragiskos with a summary of his debts owed. Mr. Fragiskos drafted a one-page repayment plan that anticipated a five-year principal repayment schedule. The plan was based on an annual net income of $200,000, consisting of an anticipated income of $120,000 in real estate commissions and $65,000 from his property management company.

24Mr. Fragiskos confirmed that the plan was not yet in effect. Originally, he had proposed that whichever broker Mr. Shepheard worked for would garnish 55% of Mr. Shepheard’s real estate commission. The garnished wages would be sent to Mr. Fragiskos to pay off Mr. Shepheard’s loans. But Mr. Fragiskos agreed in cross-examination that there was probably a better system using a regulated professional, perhaps a trustee in bankruptcy. Mr. Fragiskos also agreed that Mr. Shepheard’s past bankruptcies meant that he was unlikely to have any further bankruptcies discharged or approved. As a result, Mr. Shepheard had no choice but to pay off his debts.

25Mr. Shepheard also testified about the repayment plan. He was challenged on cross-examination as to whether it was a realistic plan. In particular, his plan was based on a $200,000 net income which he claimed was similar to amounts he had earned in the past. Mr. Shepheard was taken to his revised 2012 tax return where he had claimed a gross of $191,000 in real estate commissions; however, after deductions his net income on his tax forms was $19,000. Mr. Shepheard replied that he has gotten smarter with business expenses and that he would reduce expenses by running his business out of his house to reduce cost. Mr. Shepheard was then taken to his residential lease which had a clause excluding a home business.

26The respondent called on Angela Volpe, manager of the registration department of RECO, to testify about the appellant’s financial documents and whether they provided new information or showed a material change. Ms. Volpe reviewed the financial debts and orders against the appellant and concluded that the amount owed by the appellant had increased from the approximate $207,000 debt disclosed during the 2014 revocation to more than $300,000 today. Ms. Volpe’s position was that Mr. Shepheard’s increased debt should not qualify as a material change since the revocation.

27In cross-examination, Ms. Volpe stated that she did not believe the Registrar was looking to see that all previous debts had been paid off, but did want to see some consistent attempt to pay down the debts. She stated that the Registrar was looking for a concerted effort to show that material circumstances had changed.

28The respondent argued that the appellant’s debts had actually increased. While some of the appellant's creditors have agreed to lower the amount owed, this is on the condition that the appellant gets his real estate licence back. For example, the Capital Advance debt would revert to $222,000 if he was unable to get his licence back. With regard to the debt owed to Mr. Shepheard’s former clients, Andrew Drake and his ex-wife, the previous agreement to accept a payment of approximately $9,000 had been revoked and they are now seeking the full $20,000 owed.

29As a result, the respondent’s position is that the new evidence submitted by the appellant only shows that his material circumstances have worsened and therefore he has not met the test under s. 17.

III. Analysis

30Section 17 of the Act requires new or other evidence or a material change in circumstances (emphasis added). I find that the appellant has produced new or other evidence that was not available during the 2014 hearing. This includes:

a. Further information about his outstanding debts;

b. New letters from creditors agreeing to reduce their debts;

c. New employment information; and

d. Information about his change in lifestyle including current employment information.

31The Act does not say that the new or other evidence must show a positive material change in circumstances. If it did, then the appellant would not have been successful in meeting this burden.

32Therefore, I accept that the appellant has met his burden to show some new or other evidence that was not previously considered. I must now consider whether the respondent has shown that the appellant should not be granted registration due to the factors found under s. 10 of the Act as further discussed below.

F. Issue 2 – the appellant is unfit for registration:

I. Law

33Since the appellant is entitled to reapply for registration, the Registrar has the burden to prove that the appellant is unfit for registration. The grounds for refusal are found in s. 10(1)(a) of the Act. They are that:

a. The appellant cannot be expected to be financially responsible considering his debt and financial position;

b. There are reasonable grounds to believe that the appellant will not carry on his real estate business in accordance with law, integrity and honesty, considering his past conduct; or

c. The appellant made a statement in his application for registration.

34The onus is on the respondent to prove that the appellant is unfit for registration.

35The standard of proof for a and c is on a balance of probabilities. The standard of proof for b is “reasonable grounds for belief” which is a lower standard of proof than a balance of probabilities.

II. Evidence

The concerns of the Registrar

36Ms. Volpe testified about the Registrar’s concerns. In addition to Mr. Shepheard’s financial position discussed above, she also reviewed the appellant’s record of registration and his discipline history.

37Ms. Volpe manages and oversees registrations. She then recommends a position to the Registrar. She testified that each applicant must answer seven questions. Mr. Shepheard answered yes to most of the questions, which was a significant red flag. Ms. Volpe testified that the appellant had a long history of discipline issues dating back to 2001. Her main concerns were as follows:

a. His 2009 and onward employment with Rob Vivian coaching, which provides real estate coaching services to agents, was disclosed for the first time in the 2015 application but had not been disclosed in the 2010 or 2012 applications;

b. He disclosed numerous outstanding payments, judgments and previous bankruptcies. There were some questions as to whether the 1993, 1997, 1998 and 2002 bankruptcies and a consumer proposal had all been previously disclosed. Each bankruptcy involved hundreds of thousands of dollars.

c. There were 61 enforcement activities associated with his application since his first registration. These went from warnings to prosecutions to revocation and included complaints from the public. The number of enforcement activities was alarming. The enforcement activities showed progressive discipline. In addition, fines associated with disciplinary actions remain unpaid.

d. The appellant also owed money to Revenue Canada. This was of concern because the monies owed were not just for unpaid personal taxes ($68,222.64), but also included HST he had collected but not remitted (approximately $89,972.99) and employee source deductions he had also failed to remit ($24,396.79).

38The significant debts were concerning for many reasons. Ms. Volpe testified that real estate agents work independently and there is a large volume of money that is transacted in an isolated manner. A real estate agent runs with the ball and while there is some supervision of paperwork by the broker of record, that supervision is only after the documents have been submitted. The appellant’s past financial conduct and current financial debt load shows that he cannot be reasonably expected to be responsible with the significant amount of funds that a real estate agent handles.

39Ms. Volpe also expressed concern that the multiple bankruptcies show a pattern of financial irresponsibility. This is a significant concern when dealing with a consumer protection act that is aimed at safeguarding the public when they make, what is for many, the largest single purchase they will ever make in their life.

40Ms. Volpe critiqued the appellant’s financial repayment plan which was based on making a prospective 20 real estate transactions a year and a direction to his broker to garnish his commissions into a trust account to go towards paying his debts. Ms. Volpe stated the plan was based on hopes, not guarantees, and that $200,000 a year in revenues was excessive and difficult to meet. On cross-examination, however, Ms. Volpe agreed that in comparison to Mr. Shepheard’s past sales record, 20 sales a year was a conservative number.

41Ms. Volpe had concerns that the appellant would resort to forging signatures as he had done in the past, in order to take care of himself and his daughter, should things not go his way.

42Finally, Ms. Volpe stated that conditions on the licence were not a viable solution. The appellant’s past conduct was egregious and she stated that this was not a person who has shown that he can comply with conditions. The appellant had been subject to progressive discipline previously. The appellant did not abide by the requirements of those disciplinary actions – both courses and fines remain outstanding. Finally, it is not the role of RECO or the broker of record to constantly supervise the agent to the extent suggested. Nor is it the Registrar’s role to enforce the appellant’s repayment scheme.

The Registrar’s evidence of the effect on members of the public

43The respondent also called on two members of the public to testify about their past interactions with the appellant.

44Mr. Jermaine Spence, an Ottawa Police officer for ten years, testified about his brief interaction with Mr. Shepheard. In 2012, Mr. Spence was involved in a real estate transaction. He was advised by his real estate agent that his name had been forged and that Mr. Shepheard allegedly did the forgery in order to secure funding. Mr. Spence confirmed that he had never met Mr. Shepheard in person. Mr. Shepheard, in his cross-examination, apologised to Mr. Spence for the forgery.

45Mr. Andrew Drake also testified for respondent. Mr. Drake and his ex-wife were former clients of Mr. Shepheard. Mr. Drake met Mr. Shepheard when he was showing a house Mr. Drake and his then wife were interested in. They did not purchase that house but went on to have the appellant represent them in their search for a house.

46Mr. Shepheard assisted Mr. Drake and his wife in purchasing a house in Carleton Place. As financing was a problem, Mr. Shepheard advised Mr. Drake that he could rent out their current house until sold (a cottage on a lake) in order to get adequate financing for the new home purchase. Mr. Shepheard then decided to rent the house for his own use; however, he did not pay the rent. Twice he signed deals with Mr. Drake, eventually for a rent-to-own agreement on the cottage, but the appellant never followed through with payment. Mr. Shepheard falsely advertised the cottage on line, took without permission their $10,000 tractor, and did not take care of their cottage. Eventually, Mr. Drake and his wife had to get a lawyer involved to evict Mr. Shepheard. They were never paid the $20,000 owed by Mr. Shepheard. Mr. Drake eventually made a consumer complaint against Mr. Shepheard which resulted in an agreement that the appellant would pay them $9,000. He has not paid any amount to date and Mr. Drake and his ex-wife now want the full $20,000 owed.

47In the fall-out from the financial stress caused by Mr. Shepheard’s actions, Mr. Drake testified that his relationship with his wife suffered and that contributed to their divorce.

48Mr. Drake testified previously in the revocation hearing of 2014. He stated he was crestfallen that Mr. Shepheard had re-applied for registration so soon after the revocation. He did not want to have to testify every two years about Mr. Shepheard’s harmful actions. He stated that he wanted this to be over and that Mr. Shepheard should not be allowed to inflict harm on an unsuspecting public. Mr. Drake and his ex-wife are still owed $20,000 and though by opposing Mr. Shepheard’s registration he may never see that money, Mr. Drake felt he needed to stand up for justice. Mr. Drake stated Mr. Shepheard should never be licensed.

49In cross-examination, Mr. Shepheard apologized to Mr. Drake for his actions.

Mr. Shepheard’s evidence

50Mr. Shepheard’s own testimony consisted of the overview of his financial obligations as already documented above. He also discussed the creation of his five-year repayment plan developed with the help of Mr. Fragiskos.

51Mr. Shepheard testified about his employment situation: his property management company and his real estate agent coaching position. He answered questions about his ability to grow his property management company and the constraints he had because of his lack of a real estate sales licence.

52He testified about his change in lifestyle. In his testimony, Mr. Shepheard discussed at length his love for his daughter and the positive effect she had on him. He wanted to show her how to be a good real estate agent. He stated that taking care of his daughter was his primary focus. He also introduced some letters of support that attested to his commitment to his family.

53He also stated that he would work with any conditions set by RECO.

III. Analysis

The appellant cannot be expected to be financially responsible considering his debt and financial position

54With regard to Mr. Shepheard’s current financial position, it is clear from the evidence submitted that Mr. Shepheard’s debt situation has gotten worse since the 2014 revocation. This may partly be because not all of his debts were fully disclosed in 2014. In any case, since 2014 he has accumulated new outstanding debts. While some of his other debts have been reduced, these are in the minority. In some cases, the debt reduction was conditional on the appellant obtaining a real estate licence.

55Mr. Shepheard testified about his love for his daughter and his desire to show her the right path. He spoke very highly of his daughter’s private school, Mindware Academy, which teaches students with dyslexia. His daughter had recently graduated from the school which had an annual tuition of about $15,000. However, Mr. Shepheard’s evidence also showed that he was past due on his Mindware Academy bill by nearly $10,000 and that they were threatening to send his bill to a collections agency. That email was dated October 17, 2017, less than one month before this hearing.

56In addition, I do not consider the financial repayment plan to be evidence that can be given any weight. The plan is not based on accurate debt figures and was unclear at best as to whether it was based on net or gross income figures. Mr. Shepheard states that the plan is reasonable because it is based on amounts he earned when he had his real estate licence. However, his revised 2012 income tax assessment shows that even when he did make nearly $200,000 in real estate commissions he reported a net income of just under $20,000. His repayment plan can only work if he has $200,000 in net income. In addition, the plan was not created or reviewed by anyone with any kind of financial certification.

57Therefore, Mr. Shepheard’s current financial position is such that he cannot be expected to be financially responsible considering his debt and financial position.

Reasonable grounds to believe the appellant will not act in accordance with the law, with integrity or with honesty

58In addition, there are reasonable grounds to believe the appellant will not act in accordance with the law, with integrity or with honesty. The standard of proof the respondent has to meet is not as high as a balance of probabilities. It requires clear enough evidence to support a reasonable ground for belief. The respondent has met that test. Indeed, there was no substantive evidence offered by Mr. Shepheard that countered the evidence presented or showed that Mr. Shepheard had significantly changed.

59Mr. Shepheard’s past disregard for the law, for integrity and for honesty requires a significant effort to overcome. He must have some evidence to rebut the clear evidence of the respondent and show that he has changed. For example, Mr. Shepheard was fined as a result of the RECO Disciplinary Committee and fined by the Ontario Court of Justice: yet he has not taken the required class, nor has he paid more than a token amount towards the fines levied against him. This when he claims he makes $100,000 a year.

60The Act is a consumer protection act and its goal is to protect the public. Mr. Drake put a face to the toll caused by Mr. Shepheard’s disreputable practices. Mr. Drake suffered both emotional and financial losses because of Mr. Shepheard’s actions as a licenced agent. Mr. Shepheard could have shown he recognized the problems he caused by paying the debt owed to Mr. Drake and his ex-wife. To date he has failed to pay any money towards that debt.

61Mr. Shepheard’s actions have been egregious. His evidence showed that even one month prior to this hearing he was collecting new debts (Mindware) and had taken no steps to pay old ones. He has disregarded the fines levied by the RECO Disciplinary Committee and has failed to pay court ordered fines. He has mistreated clients. He has forged documents. He has declared bankruptcy multiple times to the point where bankruptcy may no longer be an option. He collected HST and employee deductions and used them for his own benefit. He has significant debts owed to individuals, private companies and public companies. He has presented no evidence to show that these actions are in the past and that in the future he will abide by the law. Conditions on his licence cannot be considered a viable solution when he has failed to respect obligations required of him as a result of disciplinary action and court judgements. In conclusion, there are reasonable grounds to believe that Mr. Shepheard will not act in accordance with the law, with integrity or with honesty.

62Having found that the respondent has met its burden on the grounds of both s. 10(1)(a)(i) and s. 10(1)(a)(ii), I do not need to consider whether the appellant made a false statement.

63In conclusion, the Registrar has shown that Mr. Shepheard is unfit for registration because his financial position is such that he cannot be expected to be financially responsible and because there are reasonable grounds to believe he will not act within the law, with honesty or with integrity.

G. ORDER:

64The Tribunal directs the Registrar to carry out the Proposal to refuse the appellant’s registration.

LICENCE APPEAL TRIBUNAL

____________________________ Marisa Victor, Member