Special Compensation Fund claims
The Special Compensation Fund, funded by all practising lawyers in BC, is available to compensate 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.
Called to the Bar: May 14, 1979
Resigned from membership: May 23, 2002
Custodian appointed: May 24, 2002
Disbarred: December 16, 2002 (see Discipline Case Digest 03/05)
Special Compensation Fund Committee decision involving claims 20020099 and 200220413
Decision date: February 4, 2004
Report issued: June 14, 2004
Claimant: A Bank
Payment approved: $237,883.40 ($214,989.43 and $22,893.97 interest)
The H Street property
A developer client of Mr. Wirick, Mr. G, agreed to purchase a property on H Street in Vancouver. He then assigned the right to purchase to Mr. S.
Mr. S became the registered owner of the H Street property in October and obtained a mortgage loan from A Bank.
In March, 2002 Mr. S entered into an agreement to sell the property to Mr. Y. Acting for Mr. S in this transaction, Mr. Wirick gave his undertaking to Mr. Y’s lawyer to pay out and discharge the A Bank mortgage from title. Contrary to that undertaking, Mr. Wirick failed to pay out the funds received from Mr. Y’s lawyer in accordance with his undertaking and failed to discharge the A Bank mortgage.
The Special Compensation Fund Committee found that, while not every breach of undertaking is dishonest, these circumstances suggested, not negligence or error by Mr. Wirick, but an intention to deceive.
The Committee decided that it would not require the claimants to exhaust their civil remedies in this case by obtaining judgments against Mr. Wirick, noting that he had made an assignment in bankruptcy claiming liabilities far in excess of assets, and there was little hope of recovery from him.
The Committee allowed the claim of A Bank with interest, subject to certain releases, assignments and conditions, including the requirement of providing to the Law Society a registrable discharge of its mortgage on title.
As a result of the payment and discharge of the mortgage from title, Mr. Y would be placed in the position that he ought to be in and would suffer no loss. Accordingly, his claim for compensation was denied.
Formerly of Vernon, BC
Called to the Bar: May 15, 1972
Ceased membership for non-payment of fees: December 31, 1998
Custodian appointed: January 15, 1999
Admitted professional misconduct: October, 1999 (see December, 1999 Discipline Digest)
Special Compensation Fund Committee decision involving claim 1999013
Decision date: November 12, 2003
Report issued: March 9, 2004
Claimant: Mr. and Mrs. C
Payment approved: $195,615.33
Mr. and Mrs. C
In 1997 Mr. Kenny agreed to perform services for MSI, an investment company whose president, secretary and sole director was Mr. P. Mr. Kenny agreed to act as trustee of investor funds and to hold bonds as security for investor capital and profit.
Mr. and Mrs. C were retired school principals in Australia who responded to an investment advertisement and met with Mr. M to discuss a joint venture. Mr. M was an intermediary who made arrangements for the couple to invest money through Mr. P and his company MSI.
Mr. M made enquiries about Mr. Kenny’s status as a lawyer in BC and his insurance coverage and subsequently told Mr. and Mrs. C that the MSI investment program involved a lawyer who has been "successfully facilitating very profitable capital market trading programs for his local and international clients" and urged them to consider this program. He noted that the funds would be held in trust by the lawyer and that trust funds are protected against "theft, fraud, dishonesty or mismanagement" under federal law and by the Law Society.
Mr. M further advised that, under the investment, funds could be withdrawn at any time without condition on 20 days’ notice and that the payout to Mr. and Mrs. C would be 5% per banking week, for a total payout of 200% over 10 months. He advised that the investment was more profitable than another that was under consideration and that it was "totally safe."
On April 2, 1998 Mr. Kenny, Mr. M and Mr. and Mrs. C entered into an agreement. Mr. Kenny stated in writing that he would maintain contractual control of the investment funds and would transfer them only on instruction and after receiving appropriate bank guarantees, including return of capital. The agreement also provided that the amount of the bank’s guarantee of the principal would be held in Mr. Kenny’s trust account for the benefit of Mr. and Mrs. C only.
A Law Society audit of Mr. Kenny’s trust account later showed that the investment funds of Mr. and Mrs. C, received on April 8, 1998, were co-mingled with the funds of other investors. By April 17 Mr. Kenny had paid out of his trust account all the co-mingled funds of Mr. and Mrs. C and of the other investors.
There were several further agreements between Mr. Kenny and Mr. M on behalf of Mr. and Mrs. C respecting placement of their funds. Mr. Kenny wrote letters to Mr. M and/or to Mr. and Mrs. C that were false and misleading.
The Special Compensation Fund Committee considered in detail whether Mr. Kenny received the investment funds from Mr. and Mrs. C in his capacity as a lawyer, noting that his role was to administer and facilitate a highly speculative investment scheme. The applicable principles are set out in Patchett v. Law Society of BC  1 WWR 585 (BCSC).
In the circumstances, the Committee concluded that he did receive the funds as a lawyer, taking particular note of the fact that Mr. Kenny held himself out to Mr. and Mrs. C as a lawyer and represented to them that funds would be held in trust.
The Committee found that Mr. Kenny misled Mr. and Mrs. C and that he distributed their funds in breach of the terms of his promise and that this amounted to a misappropriation or wrongful conversion.
The Committee noted its discretion to make full or partial payment of claims. The Fund is not intended to be an insurer of highly speculative and questionable investment schemes. In this case, the proposed return from the investment was so unrealistic that reasonable and prudent investors would have had to have some doubt as to the legitimacy of the scheme and recognized that they were embarking on a speculative and somewhat risky endeavour. That said, the Committee recognized that the claimants were not experienced or sophisticated investors, had lost the bulk of their retirement savings and had experienced considerable hardship.
The Committee exercised its discretion to pay the claim, reduced by 25%, subject to certain releases, assignments and conditions. The Committee declined to pay interest.
Special Compensation Fund Committee decision involving claim 1999005
Decision date: February 4, 2004
Report issued: April 2, 2004
Claimant: Mr. GC
Payment approved: $33,278.36
As noted in the summary of claim 1999013 above, Mr. Kenny agreed to perform services for MSI, an investment company whose president, secretary and sole director was Mr. P. Mr. Kenny agreed to act as trustee of investor funds and to hold bonds as security for investor capital and profit.
In November, 1997 Mr. GC, a businessman in BC, made arrangements to enter into an investment scheme that he was introduced to by Mr. S, the principal of a US investment company. Mr. S described the investment as "bank guaranteed" and identified Mr. P as the project administrator and Mr. Kenny as the project lawyer.
Mr. GC made transfers of $49,000 US, $37,000 US and $14,000 US to Mr. Kenny in trust. A summary of the projected monthly distributions stated that the investment was for a 13-month period and would generate a profit of 180%. A commitment letter signed by both Mr. GC and Mr. Kenny provided that Mr. Kenny would hold the funds in trust until he exchanged them for one-year US Treasury Bonds.
Mr. Kenny did not hold these funds in trust, but rather paid them to a third party in January, 1998. Despite this fact, he subsequently sent correspondence to Mr. GC indicating that he was intending to sell the investment contracts and forward funds to investors. He wrote to Mr. GC several times in February to advise that there were delays in having funds cleared by the federal reserve. Mr. P (through his company MSI) and Mr. Kenny wrote to Mr. GC in March respecting the delays.
In April, 1998 MSI paid $50,000 US to Mr. GC. Mr. P and MSI subsequently sent a number of "urgent" faxes to Mr. GC and other investors, giving explanations for further delays and giving false hope that payment was near. Mr. GC asked for an update in December, 1998. In January, 1999 a lawyer then acting for Mr. Kenny told Mr. GC that Mr. Kenny had $1.2 million US in a pooled trust account but that ownership of the funds could not yet be determined and would have to await completion of the Law Society’s audit and investigation.
The Special Compensation Fund Committee determined that Mr. Kenny received Mr. GC’s funds in his capacity as a lawyer, noting that Mr. Kenny held himself out to Mr. GC as a lawyer and represented that the funds would be held in trust. Mr. Kenny had misled Mr. GC and distributed his funds in breach of the terms of his promise, thereby misappropriating or wrongfully converting the funds.
The Committee noted that the Fund is not intended to be an insurer of highly speculative and questionable investment schemes. In these circumstances, Mr. GC was an experienced businessman and a reasonably sophisticated investor. The proposed return from this investment was so unrealistic that any reasonable and prudent investor in his position would have had some doubt as to the legitimacy of the scheme and recognized that he was embarking on a speculative and somewhat risky endeavour. Noting this fact, and that Mr. GC had received back half of his initial investment from Mr. Kenny, the Committee allowed 50% of his claim, subject to certain releases, assignments and conditions. The Committee declined to pay interest.
Special Compensation Fund Committee decision involving claim 1999012
Decision date: February 4, 2004
Report issued: June 1, 2004
Claimant: Mr. O
Payment approved: $99,965
In October, 1997 Mr. O (a BC business man) provided $99,990 US to Mr. Kenny in trust with instructions that he invest the money in a scheme to purchase one-year US Treasury Bonds equal to 300% of the investment funds.
Mr. O and Mr. Kenny had signed an agreement that the investment would generate a return to a maximum of 300%. They revised the agreement in November.
On November 20, 1997 Mr. Kenny told Mr. O that he had received trade tickets in furtherance of the investment, leading Mr. O to believe that Mr. Kenny had exchanged the funds for Treasury Bonds. Instead, Mr. Kenny paid out Mr. O’s funds to third parties by way of cheques to Mr. P and Mr. P's company, MSI, contrary to the terms of the agreement.
The Committee found that Mr. Kenny had received the investment funds as a lawyer. He had held himself out as a lawyer and traded on that status in luring Mr. O into the investment scheme. Mr. O believed that Mr. Kenny was the lawyer for MSI. The mere fact that Mr. Kenny received funds for the purpose of investment was not sufficient to conclude that he did not receive them in his capacity as a lawyer. While investing money is not the usual practice of a lawyer, it is a lawyer’s usual practice to deposit money into trust and pay it out as instructed by the owner.
In this case, Mr. Kenny misled Mr. O regarding the destination of his funds. He paid the funds out contrary to a written agreement he had signed and this amounted to misappropriation or wrongful conversion.
In considering its discretion to make full or partial payment of claims, the Committee noted that the Fund is not intended to act as an insurer of highly speculative or questionable investment schemes. In this case, the proposed return from the investment was so unrealistic (including claims of $500% returns if successful, and only marginally less if unsuccessful) that any reasonable and prudent investor would have had some doubt as to the legitimacy of the scheme and recognized that he or she was embarking on a speculative and somewhat risky endeavour.
Mr. O, however, was not an experienced or sophisticated investor. He initially borrowed from the line of credit of his closely held company and then repaid the loan through his RRSP, his daughter’s college fund and a mortgage against his home, resulting in hardship. The Committee allowed the claim, reduced by 25%, and subject to certain releases, assignments and conditions.
Called to the Bar: May 12, 1967
Admitted professional misconduct and undertook not to practise: November 25, 1999 (see Discipline Case Digest 03/19)
Special Compensation Fund Committee decision involving claim 2000001
Decision date: May 5, 2004
Report issued: June 25, 2004
Claimant: Beneficiary of the estate of Ms. W
Payment approved: $15,000
The W estate
In May, 1996 Mr. Motiuk drafted a will for a long-time client, Ms. W. The will appointed Mr. Motiuk’s law firm as sole executor with the right to be paid professional fees. Mr. Motiuk, however, was one of the two attesting witnesses, which rendered his appointment as executor and the charging clause invalid.
The client died in September, 1998. Mr. Motiuk obtained probate. He charged the estate and paid himself the following:
- $4,921.67 in legal fees regarding the estate (2% of the gross value of the estate);
- $4,010 in legal fees regarding power of attorney duties in previous years;
- $9,480.76 for executor’s fees (5% of the gross value of the estate).
The Special Compensation Fund Committee found that Mr. Motiuk had held the estate funds in trust as a lawyer.
The Committee noted that Mr. Motiuk did not obtain court approval or unanimous beneficiary consent or approval to take the executor’s fees. He charged both executor’s fees (the maximum available and for a relatively simple estate) and legal fees, although he was not entitled to them. His actions amounted to misappropriation or wrongful conversion of the funds he held in trust.
The Committee allowed the claim of the primary estate beneficiary, subject to the usual conditions of the claimant executing a release and an assignment.
|Francis T. Donegani
Formerly of Victoria, BC
Called to the Bar: May 16, 1968
Custodian appointed: May 15, 1990
Deceased: July 6, 1990
Special Compensation Fund Committee decision involving claim 1990025
Decision date: May 5, 2004
Report issued: July 16, 2004
Claimant: Ms. F
Payment approved: $87,030.10
In 1985 Mr. Donegani prepared a will for Mr. RF who died in June, 1996. Ms. F and her father (since deceased) were the residual beneficiaries under the will. Mr. Donegani was the sole executor of RF's estate.
A Law Society audit of Mr. Donegani’s practice revealed that Mr. Donegani had improperly taken $59,530.10 from RF’s estate, in some instances to purchase investments for Mr. Donegani’s wife. The audit also revealed that Mr. Donegani took executor’s fees of $27,500 to which he was not entitled.
The Special Compensation Fund Committee noted that, although the misappropriation took place in the 1980s, Ms. F had only discovered the facts giving rise to the claim in 2002 when contacted by Law Society staff and she properly made her claim within the two-year limitation period.
The Committee found that Mr. Donegani had received the estate funds in his capacity as a lawyer and had misappropriated from these funds. The Committee accordingly resolved to pay to the beneficiaries of RF’s estate the amount of $59,530.10 that Mr. Donegani had improperly withdrawn from trust as well as the $27,500 that he had taken as executor’s fees when he was not entitled to do so. The Committee declined to pay interest.