Citation and Court Information
CITATION: James v. LSO, 2021 ONSC 1935
DIVISIONAL COURT FILE NO.: 530/18
DATE: 20210316
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Hackland, Penny and Favreau JJ.
BETWEEN:
KENNETH JAMES
Applicant
– and –
LAW SOCIETY OF ONTARIO
Respondent
William Friedman and Patrick Bakos for the Applicant
Tanus Rutherford for the Respondent
HEARD by videoconference: January 27, 2021
Reasons for Judgment
[1] Following a lengthy hearing, the Hearing Division of the Law Society found the Appellant guilty of a number of counts of professional misconduct, including knowing participation in real estate financing fraud, or being willfully blind to the fraud. This is an appeal under s. 49.38 of the Law Society Act R.S.O. 1990 c. L.8 from three decisions of the Appeal Division of the Law Society. In its decision of May 22, 2018 (James v. Law Society of Ontario, 2018 ONLSTA 6) the Appeal Division dismissed the Appellant’s motion seeking to recuse two members of the Appeal Division panel on the appeal. In its decision of July 16, 2018 (James v. Law Society of Ontario, 2018 ONLSTA 9), the Appeal Division dismissed an appeal from the Hearing Division’s finding of professional misconduct against the Appellant and the penalty imposed of revocation. In its decision of September 25, 2018 (James v. Law Society of Ontario, 2018 ONLSTA 15), the Appeal Division dismissed the appeal from the Hearing Division’s assessment of costs against the Appellant.
[2] The standard of review on the main issues on this appeal is that stated in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 SCR 235. For all extricable questions of law, the standard of correctness applies. For questions of fact and mixed fact and law, the more deferential standard of palpable and overriding error applies.
[3] For discretionary decisions on penalty the appellant must demonstrate that there is an error in principle or the penalty was clearly unfit; with respect to costs the appellant must show that there was an error in principle or that the decision was plainly wrong.
[4] The Appellant has raised five issues in his appeal:
(1) the Appeal Division erred by misapprehending and disregarding evidence tendered at the hearing;
(2) the Appeal Division erred by failing to find that the Hearing Division displayed a reasonable apprehension of bias;
(3) the Appeal Division’s confirmation of the Hearing Division’s finding of knowing assistance in a fraud, and the attendant penalty of revocation, is inconsistent with other cases involving similar conduct;
(4) the Appeal Division erred in upholding the Hearing Division’s costs order; and
(5) the failure of the Appeal Division to order a recusal of two of its panelists.
[5] For the reasons that follow, the appeal is dismissed on all grounds.
[6] There was a 43 day hearing before the Hearing Division involving 12 real estate transactions. The Hearing Division gave detailed and lengthy reasons, including a close analysis of each of the 12 transactions, explaining why the panel did not accept the Appellant’s evidence in respect of each transaction and why the panel concluded that the Appellant knew about or was wilfully blind to the fraud. The Hearing Panel found:
• Each of the 12 transactions was fraudulent.
• The Appellant knowingly assisted or was wilfully blind in respect of the fraudulent transactions.
• The Appellant failed to be honest and candid in advising lender clients of facts that were material to their economic interests.
• The Appellant acted in a conflict of interest by acting for vendor, purchaser and lender in 11 of the 12 transactions.
• The Appellant failed to serve his clients by failing to follow instructions, failing to disclose material facts and failing to make inquiries into unusual features of the transactions.
• The appellant permitted others to use his Teranet diskette and password.
[7] In its costs decision, the Hearing Division rejected the Appellant’s submissions that no costs should be ordered or that any costs awarded against him should be set off against his costs of the first hearing, which had been aborted. The Hearing Division awarded costs of $242,169 payable to the Law Society by the appellant within three years.
[8] In the Appellant’s appeal to the Appeal Division, he argued that:
• The hearing panel erred by misapprehending and disregarding the evidence.
• The panel’s determination of knowing assistance and the penalty were inconsistent with prior precedent.
• The panel erred in not reducing costs awarded to the Law Society to account for the prior aborted hearing.
[9] In lengthy and detailed reasons, the Appeal Division found that:
• The Hearing Division did not misapprehend or ignore the evidence before it. It drew reasonable inferences based on red flags of fraud, the documents, the evidence of the witnesses (including the Appellant himself) and from the Law Society’s expert. The panel’s findings of credibility were addressed and supported in its decision and were reasonable;
• (i) The Hearing Division was reasonable in concluding the transactions were fraudulent and that the Appellant knew it. In each transaction, the panel reviewed the evidence, determined the material facts that were not disclosed to the lender and whether the appellant was wilfully blind to this nondisclosure, the Appellant’s admissions that the various amendments to the real estate deals were red flags of fraud, considered the factual matrix of these red flags and considered and rejected the Appellant’s testimony that he made inquiries and determined that the amendments were legitimate; and determined that,
(ii) Revocation was an appropriate penalty in the circumstances. The Hearing Division was entitled to distinguish the prior precedents relied on by the Appellant to support a lesser penalty on the basis that, in those cases, the lawyers involved were found to be innocent dupes, whereas the Hearing Division reasonably found that the Appellant knew about or was wilfully blind to the fraud; and,
• The Hearing Division did not err in its award of costs. It considered the fact that the first panel on the aborted, earlier hearing had faulted both the Law Society and the Appellant for not raising the Chair’s potential conflict when they first knew about it, refused to award costs to the Law Society from the date it acquired that knowledge and rejected the Appellant’s claim for costs against the Law Society. It declined to revisit the costs issues from the aborted first hearing that had already been appealed to the Appeal Division and to the Divisional Court. It considered the Appellant’s offer to settle, the length of the hearing, the amount of the fraud, the importance of the issue of fraud to the legal profession and the complexity of the hearing.
[10] In this Court, the Appellant’s arguments on each of these three issues are essentially a replay of the arguments he made before the hearing panel and the Appeal Division of the Law Society. The Appellant asks this Court to assess credibility, weigh the evidence and apply the applicable law to factual findings differently. These arguments all involve questions of fact and mixed law and fact. It is not open to an appellate court to reweigh the evidence. There was evidence to support each of the findings made, including the findings of credibility. Detailed reasons were given justifying the factual and credibility findings by both the hearing and the appellate panels below. The appellant has not discharged his burden of showing any error of law or palpable and overriding error of fact or, with respect to penalty, that it was clearly unfit or with respect to costs, that it was plainly wrong. For the reasons given by the Appeal Division, the appeal on these three grounds is dismissed.
Reasonable Apprehension of Bias
[11] Although this argument was not pursued in oral submissions, the appellant’s factum argues that the history of the Law Society’s involvement was such that the Law Society should not have heard the second proceeding against him at all. This disqualifying history is said to include: the termination of the first hearing, including the recusal of Mr. Alan Gold, the Chair of the Panel at the time; and, the Law Society’s involvement and ongoing disputes with the appellant in various other matters, including contact with the Royal Canadian Mounted Police and the Public Prosecution Service of Canada through the Law Society’s Trustee Services division. This history, the appellant says, gave rise to a reasonable apprehension of bias.
[12] There is no indication that the appellant raised this issue before the hearing panel or the Appeal Division. That alone is fatal to the allegation of bias raised in this Court. In any event, there is simply no record before the Court upon which this issue could properly and fairly be decided: Arsenault-Cameron v. Prince Edward Island, 1999 641 (SCC), [1999] 3 S.C.R. 851.
[13] I would dismiss this ground of appeal.
Recusal of Appeal Division Members
[14] A complicating factor in this case arose from the fact that the original allegations of professional misconduct, pursued before a panel of the Hearing Division commencing in March 2011, had to be aborted. After the hearing had proceeded for 23 days, the Chair of the panel recused himself on the basis of a potential conflict. The appellant brought a motion before the remaining panel members to quash, stay or dismiss the allegations on the basis of a reasonable apprehension of bias. The two remaining panel members could not agree on whether it was appropriate for them to proceed. Accordingly, the functional equivalent of a mistrial was declared, leaving it open to the Law Society to pursue a new hearing before a differently constituted panel of the Hearing Division. The panel members retained jurisdiction to deal with arguments as to the costs associated with the aborted first hearing. After considering written submissions, the panel declined to award any costs of the aborted hearing to the appellant and awarded $35,325 in costs to the Law Society.
[15] The original hearing panel concluded “with a high measure of certainty” that the appellant must have become aware of the Chair’s potential conflict of interest “well before” December 16, 2010. Given the circumstances, the hearing panel inferred that “either the appellant did not perceive a conflict of interest or chose not to bring his concerns to the hearing panel’s attention at the first opportunity”. The panel went on to find that it was “also possible” that the appellant was “simply holding on to this information to make use of it at the moment most favourable to him”, and that the Chair’s recusal “crystallized that moment”. The panel found other “curious” aspects of the appellant’s behaviour, which “only added to the hearing panel’s concerns as to his knowledge and intentions”. However, the hearing panel also commented adversely on Mr. McClyment’s (the Law Society investigator) failure to bring the Chair’s potential conflict to the attention of counsel. In the result, the hearing panel concluded that no costs should be awarded for the last 13 days of the hearing to either party. [^1]
[16] This decision was appealed to the Appeal Division. The Appeal Division, which included Mr. Bredt and Mr. Epstein, allowed the appeal in part, finding that the hearing panel’s decision to award $35,325 in costs against the appellant for the first 10 days of the hearing was “plainly wrong”. The Appeal Division therefore reduced the Law Society’s cost award to $12,270 – related to the costs of specific motions. The Appeal Division did not interfere with the hearing panel’s decision not to award the appellant any costs on account of the last 13 days.
[17] The critical passage from the 2014 decision of the Appeal Division’s decision on this point is found in para. 32:
It was not suggested that the proceeding was unwarranted. Accordingly, costs can only be awarded against the Society if it caused costs to be incurred without reasonable cause or costs were wasted by undue delay, negligence or other default. Considering the reasons as a whole, it is clear that the hearing panel attributed a measure of fault to both the Society and to the Appellant for the time incurred for the last 13 days of the hearing. There was ample evidence to support this conclusion. In our view, it was neither an error in principle nor plainly wrong for the hearing panel not to award costs against the Society for the final 13 days of the hearing.
[18] The Appeal Division’s decision was appealed to the Divisional Court. Among other things, the appellant argued that costs should have been awarded in his favour against the Law Society on a substantial indemnity basis for the last 13 days of the hearing, in the amount of approximately $113,000.00.
[19] The Divisional Court further reduced costs to the Law Society by an additional $4,072.50 but upheld the Appeal Division’s denial of costs to the appellant. The Divisional Court held that the appeal panel “reasonably concluded” that the hearing panel committed no error in principle, nor was plainly wrong, in declining to award costs to either side for the last 13 days of the hearing on the basis of evidence that both parties were at fault in failing to raise the conflict issue on a more timely basis.
[20] A second hearing of 43 days and over four years later, the appellant appealed the Hearing Division’s decisions of November 14, 2016 (on the merits) and June 26, 2017 (on costs) to Appeal Division. Mr. Bredt and Mr. Epstein were among the five members assigned to hear these appeals. The appellant brought a motion for an order that Messrs. Bredt and Epstein recuse themselves based on their participation in the appellant’s 2014 appeal of costs from the first hearing. The Appeal Division denied the motion. The appellant also appeals this decision of the Appeal Division.
[21] In essence, the appellant took the position on the motion that in the original costs decision (and appeal), there was evidence reviewed and submissions were made which “significantly prejudiced” the appellant, namely, there were “incorrect findings of fact by the original hearing panel” in relation to the appellant’s character which were “repeated and then affirmed by the appeal panel” in its May 22, 2018 decision on the appeal as to costs. The appellant also argues that the Appeal Division’s 2014 decision was found by the Divisional Court to have awarded “an incorrect amount of costs” against the appellant because the Divisional Court reduced the appeal panel’s costs award to the Law Society by a further $4,072.50.
[22] The Appeal Division summarized the relevant law of reasonable apprehension of bias in the following six propositions. There is no dispute about the applicable law:
The test for a reasonable apprehension of bias is what would an informed person, viewing the matter realistically and practically – and having thought the matter through – conclude. Would that person think that it is more likely than not that the decision maker, whether consciously or unconsciously, would not decide fairly?
There is a strong presumption of judicial impartiality that is not easily displaced.
The onus of demonstrating real or perceived bias is on the party alleging bias. This burden is a high one, and it requires cogent evidence.
The specific issues raised by the applicant in support of his recusal motion are to be construed in light of the entire proceedings – regard must be had to the cumulative effect of all of the relevant factors.
The fact that an adjudicator has ruled adversely on an interlocutory motion or in a previous case on the credibility of either a defence witness or the accused does not necessarily result in a reasonable apprehension of bias. Something more is required showing a predisposition by the adjudicator with respect to the accused’s credibility, such as to amount to a pre-judgement of the result of the second hearing.
Adjudicators should not accede too readily to allegations of actual or perceived bias. Although it is important that justice be seen to be done, it is equally important that adjudicators discharge their duty to sit and do not, by acceding too readily to the applicant’s suggestions, encourage parties to believe that, by seeking the disqualification of an adjudicator, they will have their case tried by someone thought to be more likely to decide the case in their favour.
[23] The Appeal Division, applying these principles and concluded that the appeal panel in the earlier appeal did not itself make any findings that impugned the appellant’s credibility or honesty. Rather, the appeal panel reviewed the decision of the hearing panel not to award the appellant his costs for the last 13 days of the hearing, which was based on the hearing panel attributing a measure of fault to both the Law Society and the appellant for the time incurred. The appeal panel determined that there was some evidence to support that conclusion and, accordingly, it was neither an error in principle nor plainly wrong for the hearing panel to decline to award costs against the Law Society.
[24] The Appeal Division also concluded, even if it could be suggested that the appeal panel in the earlier costs appeal was in some manner adversely commenting on the credibility of the appellant, that alone was not sufficient to demonstrate a reasonable apprehension of bias. The appellant provided no evidence of “something more” to show a predisposition by Messrs. Bredt and Epstein that would amount to a pre-judgement of the result of the appeal: see Ontario (Director, Family Responsibility Office) v. Samra, 2008 ONCJ 465 at para. 45:
In terms of the relationship between adverse credibility findings and the reasonableness of a litigant’s apprehension of real or perceived bias, the reasonable person, acting reasonably and properly informed of the law, would take into account the settled principle of law that a judge’s adverse finding regarding a litigant’s credibility in a previous hearing does not in itself create a reasonable apprehension of bias. … Something more is required showing a predisposition by the adjudicator with respect to the accused’s credibility, such as to amount to a pre-judgement of the result of the second hearing.
[25] The appellant argues before this Court that the Appeal Division erred in finding that the previous appeal panel did not itself make findings about the appellant’s credibility or honesty, because it held that there was “ample evidence” to support the hearing panel’s “conclusion” with respect to appellant’s credibility or honesty, “despite there being no evidence to reasonably support the hearing panel’s said conclusion”. The appellant goes on to submit that the Appeal Division erred in not concluding that “a clear misapprehension of the evidence” by the previous appeal panel constituted the “something more” required for a finding of a reasonable apprehension of bias.
[26] I cannot agree with the appellant’s argument. The Appeal Division was absolutely correct in concluding that the previous appeal panel did not make adverse findings of credibility against the appellant. That was not its role. The appeal panel’s job was limited to determining whether there was some evidence to support the hearing panel’s conclusion that that both parties were at fault in failing to raise the conflict issue before time was spent on the final 13 days of the original hearing. Not only was the original appeal panel satisfied that there was sufficient evidence to support this conclusion; the Divisional Court, in upholding the appeal panel’s decision, was satisfied of this as well. Thus, the appellant is demonstrably wrong in submitting that there was “no evidence to reasonably support the hearing panel’s” original disposition of the costs of the last 13 days of the aborted hearing. Indeed, to argue to the contrary is effectively a collateral attack on the Divisional Court’s prior determination.
[27] Finally, the Appeal Division was also correct in its conclusion that, even if the appeal panel had made an adverse credibility finding about the appellant in the context of the prior appeal, there was simply no other evidence showing a predisposition by the Messrs. Bredt and Epstein with respect to the accused’s credibility such as to amount to a pre-judgement of the result of the second appeal so as to give rise to a reasonable apprehension of bias.
[28] For these reasons, the appeal is dismissed.
[29] Costs are fixed and payable by the appellant to the Law Society in the amount of $20,000.
Penny J.
I agree _______________________________
Hackland J.
I agree _______________________________
Favreau J.
Released: March 16, 2021
CITATION: James v. LSO, 2021 ONSC 1935
DIVISIONAL COURT FILE NO.: 530/18
DATE: 20210316
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Hackland, Penny and Favreau JJ.
BETWEEN:
KENNETH JAMES
Applicant
– and –
LAW SOCIETY OF ONTARIO
Respondent
REASONS FOR JUDGMENT
Released: March 16, 2021
[^1]: July 21, 2011 was the date on which the Law Society’s investigator learned that the Chair of the panel might be in a conflict of interest. At this point, the hearing had been under way for a total of 10 days. Thus the appellant sought his costs of the remaining 13 days of aborted hearing time.