Recording Trial Violated Ethics Rules

The Ontario Law Society Hearing Division found misconduct in two of three charged matters and will consider an appropriate penalty.

Unpermitted recording of a criminal trial

According to the [Agreed Statement of Facts], during a criminal trial in which he was representing the accused, the Lawyer made personal recordings on his phone of the proceedings, including the testimony of at least one witness, and then uploaded the audio files to a cloud server and shared access to the files with his client.

 We find that the Lawyer engaged in professional misconduct as alleged in the first particular and as admitted in the ASF.

A court rule prohibits such recordings.

Both sides now

The Law Society alleges that the Lawyer acted for both a mortgagor and mortgagee on a residential loan transaction, in circumstances where that is not permitted by the Rules, specifically Rules 3.4-12 to 3.4-14.

This was not the first time that the Lawyer had been involved in a potentially problematic joint representation. In 2005, the Lawyer was investigated by the Law Society and gave a formal undertaking to the Law Society that he would strictly comply in the future with the rules regarding joint representation of both lender and borrower.

 At the hearing, the Lawyer’s position was that he had merely registered notice of an amendment to an existing mortgage. His further position was that the parties had negotiated the terms of the mortgage amendment agreement between themselves prior to and without his involvement. For these reasons, he submitted that he had not in fact breached the Rules.

The panel disagreed and found misconduct.

A loan transaction did not violate rules

 The Lawyer was contacted by borrowers who were seeking a loan in the amount. of $550,000 on very short notice to complete the purchase of a hotel business. The Lawyer arranged for a short-term loan that same day. The loan was repaid several months later in accordance with its terms.

The Law Society alleges that the Lawyer was acting for both the lender and the borrower in the transaction. At the hearing, the Lawyer’s position was that he acted only for the lender and that he had appropriately referred the borrower to another lawyer for independent legal representation (ILR) regarding the transaction.

We conclude that the Lawyer did refer the borrower to another lawyer for ILR, and that the Lawyer did not represent both the borrower and the lender in that transaction.

Facts of the unproven charge

  In 2018, the Lawyer was contacted by two brothers who sought to purchase a hotel business through their corporation; they needed about $550,000 on short notice to allow the transaction to be completed. In this case, short notice meant essentially one or two days. The borrower would be a corporation, which was owned by the two brothers, but the transaction would also have the two brothers providing personal guarantees of the loan (for convenience, those three parties in their various roles will simply be referred to collectively as “the borrowers”). The brothers were personally acquainted with the Lawyer through family connections, which extended back a number of years.

This loan transaction proceeded with remarkable speed, and was in the end successful, allowing the brothers to acquire the hotel business with the aid of the financing arranged very quickly by the Lawyer. One of the brothers testified at the hearing, and he explained that he himself had a law degree, had engaged in several such transactions previously, and considered himself knowledgeable about these types of financing arrangements. He also testified that the loan arrangement had worked out successfully, that the loan had been repaid in accordance with its terms (including with a very substantial interest component), and that he did not have any complaints about the transaction or how it unfolded.

However, the question is not whether the parties were satisfied with the process and the outcome, but whether the applicable rules were scrupulously followed. The Rules guard against risks even where the risks do not materialize.

The Law Society clearly became concerned at an early stage by the fact that the lender was owned and controlled by the Lawyer and/or his family, and the loan transaction appeared to be highly profitable for the lender. The terms of the loan included a 12% annual interest rate; in addition, there was a lender’s fee of $50,000. Given that the loan was for a short period, the effective interest rate would appear to have been at least 30%, and potentially considerably higher.

Key issue

The key issue in respect of this transaction was whether the borrowers were in fact represented by independent legal counsel. The Lawyer maintained throughout that he had advised and insisted that the borrowers obtain separate independent legal representation (ILR), and that he had assisted them to obtain independent representation from a lawyer with offices a few doors from his own. The Law Society’s submissions cast doubt on whether SP actually provided “independent legal representation” (ILR), or whether SP provided only “independent legal advice” (ILA), or perhaps even something less.

“Concerns” do not prove the charges

We therefore find, on the balance of probabilities, that the borrowers were in fact separately represented by independent legal counsel SP and that this transaction does not contravene the prohibition in Rule 3.4-12 against a lawyer representing both sides of such a loan transaction.

That is not to say that we do not have some concerns about the process and the effectiveness of the independent legal representation for the borrower in this particular instance. It is not clear that the borrower had genuinely effective legal representation. The Law Society counsel suggested that the lender’s counsel in situations such as this might have some low threshold of obligation to try to ensure that the borrower has legal representation that is indeed effective. One could also ask questions about the apparent joint representation by SP of several of the borrowers in this transaction. However, those are not the allegations made in the notice of application in this matter and so we do not address them.

Next

 Having made a finding of professional misconduct on two of the three allegations brought by the Law Society, we request the scheduling coordinator arrange for a penalty hearing.

(Mike Frisch)