Court File and Parties
COURT FILE NO.: 4721/15 DATE: 2016-06-28 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
FRANCES WEDLAKE Plaintiff – and – JAMES JEFFREY RICHEY and TRACEY ANN RICHEY Defendants
Counsel: Robert A. Watson, for the Plaintiff Fabio Gazzola, for the Defendants
HEARD: May 12, and June 9, 2016
Reasons for Judgment
Gray J.
[1] There is no dispute that the solicitor and client relationship is a fiduciary relationship. Indeed, there is probably no relationship that more classically gives rise to fiduciary obligations than one of solicitor and client. In any fiduciary relationship, but particularly that of solicitor and client, trust and confidence are hallmarks. Conflicts of interest are to be studiously avoided. If they cannot be avoided, independent legal advice for the client must be obtained.
[2] In this case, a solicitor borrowed money from his client. With respect to one of the loans, a mortgage on the solicitor’s home was given. Disputes have now arisen as to whether the loans have been repaid, and whether the mortgage was properly discharged. To describe the dispute as unseemly would be an understatement.
[3] It should be noted that the solicitor, Jeffrey Richey, is an Oakville lawyer who regularly appears in the Milton courts. In similar circumstances, at the request of any of the parties, arrangements are often made to have the matter heard by a judge from outside the Region in which the lawyer practices. This is not required by the Courts of Justice Act or the Rules of Civil Procedure but it is a sensible practice. Neither party made any such request in this case, and while it is distasteful for me to have to make findings against a local lawyer, it is my duty to do so where the evidence warrants.
[4] What is brought before me is a motion for summary judgment by the plaintiff. For the reasons that follow, the motion for summary judgment is granted in part.
Background
[5] Jeffrey Richey was called to the bar in 1990, and practices in Oakville as a sole practitioner. In his affidavit filed in response to the motion for summary judgment, he deposes that he practices mainly in the areas of family law, litigation and real estate.
[6] The plaintiff, Frances Wedlake, is a real estate agent in Oakville. Ms. Wedlake was a client of Mr. Richey. She had been a client for some time. She retained Mr. Richey to prepare her will, and he performed various other legal services for her over the years.
[7] Ms. Wedlake would refer real estate clients to Mr. Richey. Mr. Richey would also refer clients to Ms. Wedlake.
[8] While there is some minor dispute about this in the evidence, it would appear that the relationship between the parties was informal and friendly for many years.
[9] In July, 2007, Mr. Richey and his wife, the defendant Tracey Ann Richey, borrowed $75,000 from Ms. Wedlake. The loan was secured against the Richeys’ matrimonial home by a charge registered on July 13, 2007. The mortgage matured on June 16, 2009. The interest rate was ten per cent. Payments in the amount of $670.87 were payable monthly. Ms. Wedlake deposes that the payments were interest only. Payments were made at least through May, 2010.
[10] Pursuant to standard charge terms, the mortgagors were required to pay the full principal amount and interest secured by the charge in the manner of payment provided by the charge. The full principal amount and interest were required to be paid without any deduction or abatement.
[11] Mr. Richey himself borrowed a further $130,000 from Ms. Wedlake, and signed a promissory note dated August 12, 2013. While Mr. Richey disputes that the note put forward by Ms. Wedlake is the actual note he signed, the one found in the record provides that the borrower will pay the lender the principal sum of $130,000, and interest at the rate of 13.5 per cent per annum. It provides that the entire principal sum and any outstanding interest shall be paid on August 12, 2015. Further, it provides “All payments required to be made hereunder shall be made by the borrower without any right of set-off or counterclaim.” Mr. Richey has produced no other form of note that he says he signed.
[12] On November 4, 2011, Mr. Richey registered a discharge of Ms. Wedlake’s mortgage. Ms. Wedlake swears that she had no knowledge that the mortgage had been discharged until quite recently. Mr. Richey, for his part, claims that Ms. Wedlake signed a written Acknowledgement and Direction on November 3, 2011, which authorized Mr. Richey to register the discharge.
[13] Ms. Wedlake claims that there are considerable amounts owing on both the mortgage and the promissory note. She has provided a calculation of the amounts owing.
[14] Mr. Richey claims that the loans have been defrayed by the furnishing, by him, of legal services equal to, or exceeding, the value of the amounts said to be owing. He swears that the relationship between the parties was friendly and informal, and he never rendered any bills for his services. Rather, he says it was clearly understood between Ms. Wedlake and himself that no bills would be rendered and the value of any services would simply be deducted from amounts owing on the mortgage and the promissory note.
[15] Mr. Richey has purported, in his affidavit, to set out what he now says the value of his services on various accounts would amount to. However, he had produced no dockets or any other form of record that would indicate either that the services were rendered or what they might have been worth.
[16] For her part, Ms. Wedlake disputes that there was any understanding whatsoever that Mr. Richey’s obligation under the mortgage or the promissory note could be defrayed by the provision of legal services for which Mr. Richey would not bill. She disputes that many of the services claimed to have been performed by Mr. Richey were actually performed, or that they amounted to very much in the way of actual work performed by him, or that they had very much value if they were in fact performed.
[17] Ms. Wedlake categorically denies that she authorized Mr. Richey to discharge her mortgage, and she specifically denies signing the Acknowledgement and Direction that has now been produced by Mr. Richey.
[18] It should be noted that the existence of such an Acknowledgement and Direction was first raised in the Statement of Defence delivered on January 31, 2016. Pursuant to rule 30.04(2), counsel for Ms. Wedlake immediately served, in February, 2016, a request to inspect the Acknowledgement and Direction. Pursuant to rule 30.04(3), the document should have been made available within five days after service of the request to inspect. It was not made available until I made a specific order on May 12, 2016 requiring that it be made available at 10:00 a.m. on Tuesday May 17, 2016. It was first produced in these proceedings as an exhibit to Mr. Richey’s affidavit sworn on May 27, 2016.
[19] Ms. Wedlake denies that it is her signature on the Acknowledgement and Direction. She sets out, in one of her affidavits, the following features that she says mean that the signature on the document is not hers:
a) The first is the angle on the upstroke on the opening “F” of “Frances”. The angle of my upstroke on the document that Mr. Richey has produced is about 45 degrees. The angle when I sign differs. The angle when I sign is almost horizontal. b) The second is the space that appears on the document that Mr. Richey has produced between the opening “F” and the “small r” in the “Frances”. My signature does not contain a space like this. c) The third is the signature that appears on the document that Mr. Richey has produced dropping below the pre-printed signature line. My signature does not do this. d) The fourth is the small “k” on what Mr. Richey has produced. It has been written or traced over twice. My signature does not do this. e) The fifth is the slant going upwards appearing only at the end. When I sign, the upward slant begins immediately continuing until the end.
[20] Ms. Wedlake has produced the signature page from her will, which was prepared by Mr. Richey. She says it was prepared at approximately the same time as the Authorization and Direction was supposedly signed. She points out that the signatures on the two documents are different.
[21] It should also be noted that Ms. Wedlake had commenced a separate application to require Mr. Richey to produce all of her client files. They were not produced until I signed a specific judgment requiring that they be delivered to her solicitors. I signed the judgment on May 12, 2016. I ordered that Mr. Richey pay costs of $1,500, which I understand have not been paid.
[22] On the return of the motion for summary judgment, Mr. Watson advised me without contradiction that copies of some files had been delivered, but no originals. I made it clear to Mr. Richey’s counsel that I expected all of the original files to be delivered forthwith.
Submissions
[23] Mr. Watson, counsel for Ms. Wedlake, submits that summary judgment should be granted in the amounts claimed under both the mortgage and the promissory note. Further, he requests an order reinstating Ms. Wedlake’s mortgage pursuant to the relevant provisions under the Land Titles Act, and seeks an order for possession of the property and an immediate Writ of Possession to be issued.
[24] Mr. Watson also requests an order requiring Mr. Richey to account for what he did when exercising a power of sale of behalf of Ms. Wedlake, and an order requiring him to account with respect to the enforcement of a judgment on behalf of Ms. Wedlake.
[25] Mr. Watson submits that Mr. Richey has violated his obligations as a solicitor in his dealings with Ms. Wedlake. He submits that Mr. Richey, as a fiduciary, was obligated to act in Ms. Wedlake’s best interests. He was clearly obliged to not borrow money from his client, and he did so. He did not insist that she get independent legal advice.
[26] Mr. Watson submits that Mr. Richey’s attempt to say that the loans have been defrayed by the provision of unpaid legal services should be rejected. Mr. Watson submits that any such understanding would be contrary to the express terms of both the mortgage and the promissory note, and the parol evidence rule would bar any such defence. Both documents required payments to be made, and do not provide for payment through the provision of unbilled legal services.
[27] Furthermore, Mr. Watson submits that Mr. Richey has not come close to making out any such defence. He notes that Mr. Richey has produced not one piece of paper in support of the purported defence. One would have thought that if any such arrangement had been made, Mr. Richey would have been careful to document exactly what legal services had been performed, what they were worth, and transmitted at least a memorandum to Ms. Wedlake recording that the value of such services had been credited to the mortgage or promissory note as the case may be. No such documents have been produced. Furthermore, no dockets or any other record of the legal services alleged to have been performed have been produced.
[28] Mr. Watson notes that payments were, in fact, made on account of both the mortgage and promissory note, which is inconsistent with the defence now being advanced.
[29] Mr. Watson submits that the so-called Acknowledgement and Direction, under which Ms. Wedlake supposedly authorized the registration of a discharge of her mortgage, must be ignored. Ms. Wedlake has sworn that she did not sign the document, and has explained why the signature that appears on the document is not hers. Furthermore, the production of the document and its timing are very suspicious. Its production was demanded in February, 2016, and it was not produced until May 17, 2016, and it was produced only when an order of the court was issued requiring its production. In the circumstances, it can only be concluded that the document is a forgery.
[30] Mr. Watson submits that in view of the surrounding circumstances, it would be highly unlikely that Ms. Wedlake would have signed the Acknowledgment and Direction, and that there would be no reporting letter or other evidence recording the fact that she had apparently agreed that the mortgage had been paid off and that a discharge was registered.
[31] Mr. Watson notes that there has been no accounting by Mr. Richey as to a sale under power of sale that he conducted for Ms. Wedlake, or on the enforcement of a judgment against one Alison Jones. Mr. Watson submits that orders should issue requiring Mr. Richey to do so.
[32] Mr. Gazzola, counsel for the defendants, submits that the motion for summary judgment should be dismissed, and the matter should be pursued to trial.
[33] Mr. Gazzola submits that the facts are in conflict, and affidavits have been submitted, under oath, that differ in material respects. Under these circumstances, Mr. Gazzola submits, it is not appropriate for the court to make findings of fact on the basis of conflicting affidavits, and the matter can only be determined in a just manner after a trial on a full record. This is not a case in which a “mini-trial” can be conducted on a few discreet issues in order to resolve the dispute.
[34] Mr. Gazzola acknowledges that the arrangement between Ms. Wedlake and Mr. Richey was somewhat unusual, but can be explained by the informal, friendly, relationship that the parties had for many years. Mr. Richey’s version of the events is actually supported by the fact that he did not send any bills to Ms. Wedlake, while it is acknowledged that he did provide legal services for her. Had the arrangement not been as Mr. Richey alleges that it was, one would have expected legal bills to have been rendered and paid.
[35] Mr. Gazzola submits that Mr. Richey has filed an affidavit in which he has detailed the specific legal services rendered to Ms. Wedlake, and has set out the value of those services. Without a trial, there is no reason to discount Mr. Richey’s affidavit in that respect.
[36] Mr. Gazzola submits that Mr. Richey has sworn under oath that Ms. Wedlake executed an Acknowledgement and Direction authorizing him to discharge the mortgage. Without a trial, it cannot be concluded that the Authorization and Direction is a forgery.
[37] For these reasons, Mr. Gazzola submits that the motion for summary judgment should be dismissed.
[38] Authorities relied on by the parties included Goldman v. Devine, 2007 ONCA 301; Davey v. Woolley, Hames, Dale & Dingwall (1982), 35 O.R. (2d) 599 (C.A.); Bank of Montreal v. Duguid (2000), 47 O.R. (3d) 737 (C.A.); Equitable Trust Co. v. Marsig (2012), 109 O.R. (3d) 561 (C.A.); Web Offset Publications Ltd. v. Vickery (1999), 43 O.R. (3d) 802 (C.A.); Andrew Feldstein & Associates Professional Corp. v. Keramidopulos, [2007] O.J. No. 3683 (S.C.J.); Holt v. Telford, [1987] 2 S.C.R. 193; Forestall v. Carroll, [2016] O.J. No. 2159 (Div. Ct.); and Hryniak v. Mauldin, [2014] 1 S.C.R. 87.
Analysis
[39] Certain of the Rules of Professional Conduct, made by the Law Society of Upper Canada under the authority of the Law Society Act, have relevance here. They include:
Transactions with Clients
3.4-27 – For the purposes of rules 3.4-27 to 2.4-36,
“regulated lender” means a bank, trust company, insurance company, credit union or finance company that lends money in the ordinary course of business;
“related person” in relation to a lawyer means
(a) a spouse, child, grandparent, or sibling of the lawyer,
(b) a corporation that is owned or controlled directly or indirectly by the lawyer or that is owned or controlled directly or indirectly by the lawyer’s spouse, child, grandparent, parent or sibling, or
(c) an associate or partner of the lawyer;
“syndicated mortgage” means a mortgage having more than one investor;
“transaction with a client” means a transaction to which a lawyer and a client of the lawyer are parties, whether or not other persons are also parties, including lending or borrowing money, buying or selling property or services having other than nominal value, giving or acquiring ownership, security or other pecuniary interest in a company or other entity, recommending an investment, or entering into a common business venture.
3.4-28 A lawyer must not enter into a transaction with a client unless the transaction is fair and reasonable to the client.
3.4-28.1 Except for borrowing from a regulated lender or from a related person, a lawyer shall not borrow from a client.
3.4-28.2 A lawyer shall not do indirectly what the lawyer is prohibited from doing directly under Rules 3.4-28 to 3.4-36.
[40] The import of these provisions is clear:
a) A lawyer must not enter into a transaction with a client unless the transaction is fair and reasonable to the client;
b) One species of transaction, that is, borrowing from a client, is absolutely prohibited unless the lender is an institutional lender, a family member, or a lawyer’s associate or partner.
[41] Rule 3.4-29 is also relevant. I will not reproduce it verbatim. In substance, it requires that if a transaction with a client is permitted, a lawyer must recommend that the client receive independent legal advice and, where the circumstances require, recommend or require that the client receive legal representation, and obtain the client’s consent to the transaction after the client receives the legal advice or representation.
[42] There is no dispute, and indeed Mr. Richey’s counsel acknowledges, that Mr. Richey violated one or more of these rules. Ms. Wedlake is not an institutional lender, a family member of Mr. Richey, or his associate or partner. Any borrowing of money by Mr. Richey from Ms. Wedlake was absolutely prohibited by rule 3.4-28.1.
[43] While Ms. Wedlake was Mr. Richey’s client, he had fiduciary obligations to her. Indeed, many of those obligations continue after the solicitor and client relationship ends.
[44] Fiduciary relationships can arise in a number of different circumstances, depending on the facts: see Hodgkinson v. Simms, [1994] 3 S.C.R. 377. However, such a relationship will always arise in the case of solicitor and client. Where it arises, the beneficiary is entitled to expect that the fiduciary will be concerned solely for the beneficiary’s interests, never the fiduciary’s own: see 3464920 Canada Inc. v. Strother, [2007] 2 S.C.R. 177, at para. 36.
[45] This principle is encapsulated in the relevant Rules of Professional Conduct that govern lawyers. While technically those Rules are not necessarily binding on the court, they are nevertheless to be given great weight. As stated by La Forest J. in Hodgkinson, supra, in discussing the rules relating to the accounting profession, at para 50:
Further, in many advisory relationships norms of loyalty and good faith are often indicated by the various codes of professional responsibility and behaviour set out by the relevant self-regulatory body. The raison d’être of such codes is the protection of parties in situations where they cannot, despite their best efforts, protect themselves, because of the nature of the relationship.
[46] At para. 52, La Forest J. stated “In sum, the rules set by the relevant professional body are of guiding importance in determining the nature of the duties flowing from a particular professional relationship”, and in the last sentence of the paragraph he stated “It would be surprising indeed if the courts held the professional advisor to a lower standard of responsibility than that deemed necessary by the self-regulating body of the profession itself.”
[47] The purpose of imposing these obligations on a solicitor is clear: the relationship between the parties is such that the solicitor is deemed to have all the power and knowledge. The imbalance is profound. Even where transactions between a solicitor and his or her client are permitted, the solicitor must take extraordinary steps to ensure that his or her client’s interests are protected. In one circumstance, borrowing from a client, transactions are prohibited altogether.
[48] In cases where transactions are permitted, the onus will be on the solicitor to demonstrate that the client’s interests have been protected.
[49] Where does this take us? What does it mean that Mr. Richey has violated his fiduciary obligations and the Rules of Professional Conduct?
[50] Notwithstanding Mr. Richey’s violations, the debt instruments are valid, and they are binding on Mr. Richey and, in one instance, his wife. If payments are made to the creditor, Ms. Wedlake, Mr. Richey must receive credit for them. However, the onus is clearly on Mr. Richey to demonstrate that he has satisfied his obligation to retire the debts. His fiduciary obligations would require no less.
[51] Since the decision of the Supreme Court of Canada in Hryniak v. Mauldin, [2014] 1 S.C.R. 87, supra, it has been open to the court to grant summary judgment on the basis of affidavit material, even where it is conflicting, provided the judge is able to reach a fair and just determination on the merits based on the material before him or her. As stated by Karakatsanis J. at para. 49:
There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits of a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.
[52] It is with these considerations in mind that I will assess the evidence here. In so doing, I will assume that Mr. Richey has put his best foot forward. He has produced virtually no records, including dockets, to support his position that legal services were provided or that they had any value. There is no reason to think better evidence would be available at trial.
[53] I am not satisfied, based on the evidence produced, that there was any agreement between Ms. Wedlake and Mr. Richey that the debts incurred by Mr. Richey could be defrayed by the provision of unbilled legal services. I say this for a number of reasons.
[54] First, payments were actually made under the debt obligations. If it was the understanding that payments were not necessary, it is difficult to understand why payments were made and accepted.
[55] Second, if the understanding was as Mr. Richey would have it, one would have expected documentation to record the retirement of the loans as services were rendered. Not only was no documentation produced to show any recording as between the parties that the loans were being reduced, no dockets to support the provision of legal services have been produced.
[56] Third, having regard to the fact that it was Mr. Richey’s obligation, as a solicitor, to ensure that his client’s interests were protected, one would expect that independent legal advice would have been insisted upon by Mr. Richey before the debt obligations were entered into. Furthermore, the consent of the client to the rather unusual payment arrangement should have been recorded, so that an independent solicitor, giving advice to the client, could be fully informed and be able to give proper advice as to whether the transactions should have been entered into in the first place. No document purporting to fully inform the client as to the unusual payment arrangement has been produced.
[57] I have no difficulty finding, on this record, that there was no such agreement as contended by Mr. Richey.
[58] That being the case, the Authorization and Direction purporting to authorize Mr. Richey to register a discharge of the mortgage must be viewed with considerable suspicion. This is particularly so because it was only produced several months after its production was demanded, and only after an order of the court had been made requiring its production. Ms. Wedlake has given compelling evidence, upon which she has not been cross-examined, that the signature on the document is not hers. On a balance of probabilities, I am persuaded that the document is not genuine.
[59] Even if the document was actually signed by Ms. Wedlake, there is no evidence that Mr. Richey complied with his fiduciary obligations to ensure that his client’s interests were fully protected. At a minimum, that would have required him to ensure that his client had independent legal advice before signing the Authorization and Direction. This is particularly so, in my view, because of the unusual payment arrangement that Mr. Richey alleges was in place, and that has not been supported by any records, at least none that have been produced. In such circumstances, it would have been necessary for Mr. Richey to ensure that his client was fully apprised of all the relevant features, and that his client was entirely satisfied that the loan had been retired through the unusual arrangement.
[60] In view of the fact that Mr. Richey did not comply with any of his fiduciary obligations in this respect, I am not prepared to give effect to a document that purports to authorize Mr. Richey to act as he did.
[61] Mr. Richey’s defence is that he retired the obligations in the manner he described. I do not accept that defence. He has not otherwise challenged the calculations made by Ms. Wedlake as to the amounts owing on the mortgage and on the promissory note. I am fully satisfied, on this record, that I can make the necessary findings of fact and apply the law to the facts so as to reach a fair and just determination on the merits.
[62] Since I am satisfied that the discharge of the mortgage was improperly registered, an order must issue requiring the amendment of the register so as to re-record the mortgage that was improperly discharged. If counsel are unable to agree on the form of order to effect this result, I may be spoken to. I recognize that the mortgage will now rank behind a first mortgage that is larger than the one that was in place before, but this is the best that can be done in the circumstances.
[63] For the foregoing reasons, I order as follows:
a) Pursuant to sections 159 and 160 of the Land Titles Act, the land registrar is directed to rectify the parcel register to delete the purported discharge of the mortgage originally registered on June 13, 2007;
b) Pursuant to sections 159 and 160 of the Land Titles Act, the land registrar is directed to rectify the parcel register to restore the mortgage that was originally registered on July 13, 2007;
c) Ms. Wedlake is granted judgment against both defendants under the mortgage in the amount of $142,892.78, plus interest at the rate of ten per cent per annum from May 1, 2016 to the date of payment;
d) Ms. Wedlake is granted judgment as against James Jeffrey Richey under the promissory note in the amount of $173,875, together with interest at the rate of 13.5 per cent per annum from May 1, 2016 to the date of payment;
e) Ms. Wedlake is granted judgment for possession of the property, and an order for the issuance of a writ of possession forthwith.
[64] If there is any dispute as to the formal order I may be spoken to.
[65] I decline to award summary judgment with respect to the claims involving the exercise of a power of sale on a mortgage held by Ms. Wedlake, and on the enforcement of a judgment against Alison Jones. Those matters may proceed to trial if so advised.
[66] I will entertain brief written submissions as to costs, not to exceed three pages, together with a costs outline or bill of costs. Mr. Watson shall have five days to file submissions, and Mr. Gazzola shall have five days to respond. Mr. Watson shall have three days to reply.
Gray J.
Released: June 28, 2016