Special Compensation Fund claims
The Special Compensation Fund, funded by all practising lawyers in BC, compensates persons who suffer loss through the misappropriation or wrongful conversion of money or property by a BC lawyer acting in that capacity.
The Special Compensation Fund Committee makes decisions on claims for payment from the Fund in accordance with section 31 of the Legal Profession Act and Law Society Rules 3-28 to 3-42. Rule 3-39 (1)(b) allows for publication to the profession of summaries of the written reasons of the Committee. These summaries are published with respect to paid claims, and without identifying the claimants.
Special Compensation Fund Committee decision involving claims 20020107, 20020233, 20020260, 20020402, 20020444, 20020517
Decision date: March 31, 2004
Report issued: March 31, 2005
Claimant: A Bank
Payment approved: $145,527.99 ($132,412.57 and $13,115.42 interest)
Claimant: B Credit Union
Payment approved: $347,660.56 ($318,479.85 and $29,180.71 interest)
The V Drive properties
B was the owner of property in Vancouver. He obtained a $136,000 loan from A Bank, secured by a mortgage registered against the property. B later subdivided the property into two lots.
In February, 2001 B entered into a contract to sell one of the lots to W and L. He contracted to sell the other lot to Mr. and Mrs. W.
B obtained an inter alia mortgage for $200,000 and assignment of rents (in favour of N) against the two lots. He arranged a further inter alia mortgage for $323,610, registered in favour of B Credit Union.
On June 7, 2001 Mr. Wirick provided written undertakings to the lawyers representing the purchasers in the sale transactions to pay out and discharge the A Bank, B Credit Union and N mortgages from both properties.
In both transactions, the purchasers obtained new mortgage financing: Mr. and Mrs. W obtained financing from D Bank, while W and L obtained financing from E Bank.
With respect to the lot purchased by W and L, Mr. Wirick received in trust $214,989.08 from their lawyer. With respect to the lot purchased by Mr. and Mrs. W, Mr. Wirick received in trust from their lawyer $205,262.48. In neither transaction did Mr. Wirick use the funds to pay out the mortgage, but instead used the funds for other purposes, contrary to the undertakings he had given.
As a result of Mr. Wirick breaching his undertakings, the mortgages remained on title, other than the N mortgage, which was discharged in 2003.
The Special Compensation Fund Committee found that, while not every breach of undertaking is fraudulent, the circumstances of this case did not suggest negligence or error, but an intention to deceive. Mr. Wirick knowingly paid out money in breach of his undertakings and the Committee was satisfied that he had misappropriated or wrongfully converted the funds.
The Committee decided that it would not require the claimants to exhaust their civil remedies in this case by obtaining a judgment against Mr. Wirick, given that there was little hope of recovery from him.
The Committee allowed the claim of A Bank and B Credit Union, subject to certain releases, assignments and conditions, including the requirement that they discharge their mortgages. The Committee also exercised its discretion to pay on these claims interest at the contract rate to May 24, 2002 and thereafter to the date of the decision at the applicable rate to a maximum of 6% per annum.
Following this payment and discharge of the prior mortgages, the purchasers Mr. and Mrs. W, the purchasers W and L and their mortgagees (D Bank and E Bank) would suffer no loss. Accordingly, these separate claims for compensation were denied.
Special Compensation Fund Committee decision involving claims 20035004, 20035005, 20035006
Decision date: June 9, 2004
Report issued: September 1, 2004
Payment approved: $256,729.85
($239,390.63 plus mortgage interest and costs)
In May, 2003 Mr. Skagen acted for M who had agreed to sell his property in Abbotsford to N and W. The property had two mortgages on title, one for $240,000 in favour of a trust company and one for $32,000 in favour of H Corporation.
Mr. Skagen gave an undertaking to the notary representing the purchasers (N and W) that, upon receipt of funds in the transaction, he would pay out and discharge the two mortgages from title. He used some of the funds to pay out the H Corporation mortgage and discharge it but, contrary to his undertaking, he failed to use the funds to pay out the trust company mortgage.
In October, 2003, the trust company’s solicitors demanded payment from the vendor M, and also from the purchasers, N and W. The trust company subsequently began a foreclosure action. An order nisi of foreclosure was granted on December 15, 2003, with a nine-month redemption period.
The Special Compensation Fund Committee found that, while not every breach of undertaking is fraudulent, the circumstances of this case did not suggest negligence or error, but an intention by to deceive by Mr. Skagen who breached his undertaking to use the trust funds forwarded to him in the real estate transaction in the manner he had promised.
The Committee decided that it would not require the claimants to exhaust their civil remedies in this case by obtaining a judgment against Mr. Skagen. In these circumstances, Mr. Skagen was no longer in practice. Moreover, both the innocent vendor and the innocent purchasers were being pursued by the trust company on the foreclosure action for funds that Mr. Skagen had undertaken to pay.
The Committee allowed the claim of M in the amount owing to the trust company to pay out its mortgage, plus applicable interest and costs on the order nisi of foreclosure. The payment was subject to conditions, assignments and releases. As a result of the payment, and discharge of the trust company mortgage, the vendor M, the purchasers N and W and the purchaser’s mortgagee (which should hold a first charge on the property) would all be placed in the positions that they had bargained for. The Committee accordingly denied their separate claims for compensation.
Mark Edward MacDonald
Special Compensation Fund Committee decision involving claim 20000015
Decision date: September 29, 2004
Report issued: November 16, 2004
Payment approved: $15,000
In August, 1998 Mr. MacDonald began acting for W, a German citizen and the sole beneficiary of her sister’s estate in BC, in applying for an Order for Administration of the Estate, dealing with assets and liabilities and distributing the estate.
W contracted with Mr. MacDonald to pay him 3.5% of the gross aggregate value of the estate for his legal services and to provide a $1,000 retainer for disbursements on the proviso that Mr. MacDonald provide W with an invoice before using money from the trust account. Mr. MacDonald in fact never invoiced W for court disbursements prior to using money from the trust account.
On December 18, 1998 Mr. MacDonald withdrew $5,000 from trust by cheque for deposit to his general account. The trust ledger for W indicated that the funds were “to [the M estate] for payment on account (advance on fees).”
On November 3, 1999 Mr. MacDonald withdrew a further $10,000 from trust by cheque for deposit to his general account. The cheque included a note stating “advance on fees – W.”
On January 18, 2000, in a state of emotional crisis, Mr. MacDonald wrote a note indicating that he would steal funds from the M estate, leave the country and commit suicide. That same day he withdrew $50,000 from his trust account, a cheque payable to himself that stated “W – A/C#1.”
Mr. MacDonald’s note was discovered by a friend on January 21, 2000. That same day, the Law Society was advised that Mr. MacDonald was in a state of emotional crisis and had indicated he intended to steal funds. The Society commenced an investigation, which led to the discovery of the $50,000 misappropriation. Mr. MacDonald was cited and suspended on January 25, 2000, pending his hearing, and the BC Supreme Court appointed a custodian of his practice on application by the Society on January 26, 2000.
Mr. MacDonald, who had left Vancouver, returned on January 27, 2000. Mr. MacDonald admitted to misappropriating the sum of $50,000 from the M estate. He deposited the $50,000 to the estate trust account, thereby making restitution of the sum he had misappropriated.
W retained new lawyers to complete the estate administration and they alleged that Mr. MacDonald had misappropriated the $15,000 from trust.
The Committee considered it relevant that Mr. MacDonald admitted to misappropriating $50,000 from the M estate. They found that he withdrew the $15,000 in contravention of his contract with W and without rendering accounts or providing any time records to support these accounts.
The Committee considered whether Mr. MacDonald’s actions in withdrawing the $15,000.00 amounted to negligence, as distinct from fraud, and further whether the claim was more properly characterized as a fee dispute. The Committee concluded that it could not credibly be claimed that the $15,000 was paid by Mr. MacDonald to himself in connection with the provision of legal services.
The Committee concluded that W’s claim should be allowed, without interest and subject to W executing a release and an assignment of her claim against Mr. MacDonald.