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 the identification of claimants.

 

Martin Wirick

Vancouver, BC
Called to the Bar: May 14, 1979
Resigned from membership: May 23, 2002
Custodian appointed: May 24, 2002
Disbarred:* December 16, 2002

*Mr. Wirick's disbarment was subsequent to the Special Compensation Fund Committee's determination of these claims. For the discipline summary, see DCD 03/05.

 

Special Compensation Fund Committee decision involving claims 20020019, 20020446, 20020153, 20020190, 20020229, 20020265, 20020191, 20020227, 20020154, 20020226 and 20020267.

Decision date: November 25, 2002
Report issued: December 19, 2002

Claimant: AA Credit Union
Payment approved: $377,163.69 ($207,667.40 and $169,496.29)

Claimant: B Mortgage Company
Payment approved: $909,100.79

Claimant: C Bank
Payment approved: $547,192.60 ($273,596.30 and $273,596.30)

Claimant: D Inc.
Payment approved: $155,498.63

Claimant: E Bank
Payment approved: $892,386.81 ($298,015.84, $296,355.13 and $298,015.84)

Claimant: F Bank
Payment approved: $682,918.34 ($341,459.17 and $341,459.17)

 

The East Vancouver properties
The inter alia mortgages

Between 1999 and 2002, Mr. Wirick represented Mr. G (and subsequently his assignee S) in the mortgaging and remortgaging of three adjoining East Vancouver properties. In many instances, he represented both S as mortgagor and a financial institution as mortgagee.

Mr. G owned a numbered company that contracted to purchase an East Vancouver residential property (Property #1) for $336,000 in September, 1999. The purchase was scheduled to complete in mid-2000. Prior to completion, Mr. G's company assigned rights to the property to S who completed the purchase.

Mr. Wirick acted for S as borrower in the mortgage financing of the purchase and also for AA Credit Union as mortgage lender. He registered AA Credit Union's $170,000 mortgage as a first charge against the property.

In October, 1999 Mr. G contracted to purchase Property #2 for $275,000, with a completion date in March, 2000. As with Property #1, S completed the purchase of Property #2. Mr. Wirick again represented both S as mortgage borrower and AA Credit Union in the financing of this property. Mr. Wirick used the funds from the sales of other properties for the purchase of Property # 2 and used the funds from AA Credit Union for other purposes.

In December, 2000 S and his construction company applied to demolish the homes on Properties #1 and #2 and to build two-storey buildings on these properties and on a third property ("Property #3"). S obtained a number of construction mortgages. In September, 2000 the AA Credit Union mortgage on Property #1 was extended to Properties #2 and #3 as an inter alia mortgage. The AA Credit Union mortgage on Property #2 was likewise extended to Properties #1 and #3.

In June, 2001 an inter alia mortgage for $870,000 in favour of B Mortgage Company was placed on Properties #1, #2 and #3. Mr. Wirick represented S in the transaction, while another lawyer represented B Mortgage Company.

The lawyer for B Mortgage Company forwarded the mortgage funds to Mr. Wirick on his undertaking to pay out and discharge various charges on the property so that B Mortgage Company's mortgage would be a first charge on title. Mr. Wirick gave this undertaking, but did not in fact use any of the funds to pay out any of the previously registered mortgages.

In December, 2001 another inter alia mortgage for $350,000 in favour of D Inc. was placed on Properties #1, #2 and #3. The mortgage was to be a second mortgage. None of the designated mortgage funds were used to pay out any of the previously registered mortgages. 

Additional mortgages on the properties

Property #1

By December 14, 2001 Property #1 was subject to the inter alia mortgages as security for the obligations of S to AA Credit Union, B Mortgage Company and D Inc. Three additional mortgages were placed on Property #1, as follows:

  • on December 4, 2001 a mortgage for $270,000 in favour of C Bank as the institutional mortgage lender;
  • on January 8, 2002 a mortgage for $292,500 in favour of E Bank as the institutional mortgage lender; and
  • on February 18, 2002 a mortgage for $337,500 in favour of F Bank as the institutional lender.

In each of these transactions, Mr. Wirick acted for both S as borrower and for the institutional lender. In each case, the lender provided the mortgage funding to Mr. Wirick in trust on the basis that it would receive a first charge against the property and Mr. Wirick advised both E Bank and F Bank that a first charge in their favour had been secured. In fact, Mr. Wirick used none of the funds he received in trust to pay out any of the previously registered mortgages.

In March, 2002 S contracted to sell Property #1 to new purchasers. The purchase completed in April and included registration of a new mortgage in favour of G Bank. Mr. Wirick acted for S and a notary public acted for the new purchasers. Mr. Wirick undertook to pay out and discharge all prior charges on title on receiving the purchase funds from the notary. In a letter he stated that he had already paid all the charges on title except that of F Bank and was only awaiting the return of releases from C Bank and E Bank. He received $377,578.61 in trust from the notary acting for the new purchaser, but discharged none of the prior mortgages.

Property #2

Property #2 was subject to the inter alia mortgages as security for the obligations of S to AA Credit Union, B Mortgage Company and D Inc. Two additional mortgages were placed on Property # 2, as follows:

  • on December 4, 2001 a mortgage for $292,500 in favour of E Bank as the institutional mortgage lender; and
  • on February 18, 2002 a mortgage for $337,500 in favour of F Bank as the institutional lender.

In each transaction, Mr. Wirick acted for both S as borrower and for the institutional lender. Each lender anticipated it would receive a first charge on title and Mr. Wirick specifically reported to E Bank that it held a valid first charge. Mr. Wirick received the mortgage proceeds in trust, but used none of the funds to pay out any of the previously registered mortgages.

S subsequently sold Property #2 to new purchasers for $423,000. The sale completed in March, 2002. Mr. Wirick represented S in the transaction. The purchasers' notary forwarded the purchase funds to Mr. Wirick on his undertaking to pay out and discharge all prior mortgages, but Mr. Wirick did not do so.

Property #3

Property #3 was subject to the inter alia mortgages as security for the obligations of S to AA Credit Union, B Mortgage Company and D Inc. Two additional mortgages were placed on Property # 3, as follows:

  • on December 4, 2001 a mortgage for $270,000 in favour of C Bank as the institutional mortgage lender; and
  • on January 8, 2002 a mortgage for $292,500 in favour of E Bank as the institutional lender.

In each transaction, Mr. Wirick acted for both S as borrower and for the institutional mortgage lender. Each lender anticipated it would have a first charge against the property. Mr. Wirick received the mortgage proceeds in trust and represented to each lender that he had secured a valid first charge. In fact he used none of the funds to pay out any of the previously registered mortgages.

In February, 2002 S sold Property #3 to new purchasers. A new mortgage of $265,200 in favour of G Bank was to be registered as a first charge against the property as part of the purchase financing. The notary for the new purchasers sent Mr. Wirick the purchase funds in trust on his undertaking to pay out the previous charges on title. Mr. Wirick did not in fact use the funds to pay out the previous mortgages, but used them for unrelated matters.

*   *   *

With the exception of D Inc., all mortgage lenders in these transactions anticipated that they would have a first charge on the properties with respect to which they advanced mortgage financing. AA Credit Union in fact held the first charge on Properties #1, #2 and #3.

*   *   *

The Special Compensation Fund Committee considered compensation claims made by the mortgage lenders and by the new purchasers of East Vancouver Properties #1, #2 and #3.

The Committee noted that, while applications to the Fund are ordinarily considered after the conclusion of discipline proceedings, these applications would proceed early. In the circumstances, one of the lenders had already commenced foreclosure proceedings and a master had granted a three-month redemption period and ordered that the properties be listed for sale at the end of the three-month period.

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 he had made an assignment into bankruptcy, that his debts greatly exceeded his assets and that there was little hope of recovery from him.

In considering the eligibility of the claims for compensation, the Committee noted that Mr. Wirick had received trust funds in his capacity as a lawyer who acted for the vendor, purchasers or lenders in the conveyance or mortgage of real property. He had not provided an explanation of the various claims, but his bankruptcy documentation clearly showed that he breached his undertakings to pay trust funds to specific parties and to clear title. Given the pattern of deceit and dishonesty, the Committee came to the irrefutable conclusion that Mr. Wirick misappropriated and/or wrongfully converted the funds.

Noting its discretion to dispose of claims and make payment as it saw fit, the Committee determined to pay the claims of AA Credit Union, B Mortgage Company, C Bank, D Inc., E Bank and F Bank in the principal amount of the outstanding mortgages, plus interest.

Payment of approved claims from the Fund was subject to a number of conditions:

  • all claimants must agree to the conditions and, if not, the claim must go back to the Committee;
  • all financial institutions submitting claims must provide statutory declarations setting out:
  • whether they have any insurance available to pay these claims; and
  • whether they have instigated any disciplinary action against any employee or terminated the employment of any employee or if any employee has resigned as a result of any matter in connection with these mortgages;
  • all claimants must provide an assignment of their claims against Mr. Wirick, Mr. G and any companies owned by Mr. G that were involved in this matter;
  • all lenders must provide a discharge of their respective mortgages in registrable form;
  • all claimants must provide releases to the Law Society and the Fund.

The Committee exercised its discretion to pay interest, based on the special circumstances of these claims. Accordingly, interest was to be paid at the applicable rate until May 24, 2002 and at the applicable rate (to a maximum of 6%) thereafter until November 25, 2002.

The Committee considered, but did not allow, claims made by G Bank and by the new purchasers of Properties #1, #2 and #3. The Committee noted that, once all charges and mortgages ahead of the G Bank mortgages were paid, these claimants would have suffered no direct loss as a result of Mr. Wirick's actions and would be in the same position as they would have been had he honoured his undertakings.

*   *   *

Special Compensation Fund Committee decisions involving claims 20020293, 20020018, 20020272 and 20020498.

Decision date: November 25, 2002
Report issued: December 20, 2002

Claimant: D Inc.
Payment approved: $207,578.08 ($103,789.04 and $103,789.04)

Claimant: AA Credit Union
Payment approved: $837,679.05 ($418,662.94 and $419,016.11)

The West Side Vancouver Properties

Mr. Wirick acted for Mr. G who was the sole director of V Ltd., a construction company. V Ltd. purchased a property on the west side of Vancouver, demolished the residence and divided the property into two strata lots (Properties #1 and #2).

To finance the purchase and new construction, V Ltd. obtained three mortgages to be registered against Properties #1 and #2:

  • a $322,500 mortgage in favour of H Mortgage Group on December 29, 1999;
  • a $100,000 mortgage in favour of D Inc. on December 30, 1999 (later discharged and replaced with a $200,000 mortgage on February 9, 2001); and
  • a $294,000 mortgage in favour of I Mortgage Company on August 10, 2000.

In March, 2001 V Ltd. sold Property #1 to its nominee (S) and sold Property #2 to its nominee (SS). Each property sold for $605,000.

S and SS each obtained purchase financing of $417,450 from AA Credit Union.

AA Credit Union forwarded mortgage funds with respect to both purchases (a total of $834,900) to Mr. Wirick in trust. With respect to each property, Mr. Wirick confirmed registration of a first charge in favour of AA Credit Union, subject only to the mortgages of T Mortgage Group, D Inc. and I Mortgage Company, which were to be discharged. Mr. Wirick did not in fact use the mortgage proceeds to secure discharges of those mortgages. Rather, he directed the funds to be used in a manner not authorized by AA Credit Union and for the benefit, directly or indirectly, of himself and his client, Mr. G.

In August, 2001 S sold Property #1 to new purchasers for $529,000. The purchasers obtained new mortgage financing of $325,000 from C Bank. The lawyer representing the new purchasers forwarded $446,459.25 to Mr. Wirick in trust on his undertaking to pay out and discharge the H Mortgage Group, D Inc., I Mortgage Company and AA Credit Union mortgages (and the attendant assignment of rents on the H Mortgage Group and I Mortgage Company mortgages). Mr. Wirick also received in trust $11,900 from the realtor, $34,607.48 from a builders' lien holdback and $128.19 as interest on the lien holdback.

In September, 2001 SS sold Property #2 to a new purchaser for $505,000. The purchaser obtained two new mortgages from C Bank totalling $355,000. The purchaser's lawyer forwarded $467,320.13 to Mr. Wirick in trust on his undertaking to pay out and discharge the H Mortgage Group, D Inc., I Mortgage Company and AA Credit Union mortgages (and the attendant assignment of rents on the H Mortgage Group and I Mortgage Company mortgages).

Mr. Wirick breached his undertakings respecting the trust funds he received in these two transactions. He failed to discharge the prior mortgages and related charges, but instead paid the funds to unauthorized payees for the benefit, direct or indirect, of himself and his client, Mr. G. At a later date he paid and obtained discharges of two of the mortgages on Properties #1 and #2 with funds from other properties. As of the date he ceased practice, however, Mr. Wirick had not filed those discharges.

Had the purchase and financing of Property #1 proceeded as the purchasers anticipated, they would have received their fee simple interest in the property, subject only to a first mortgage in favour of C Bank. Had the purchase and financing of Property #2 proceeded as that purchaser anticipated, he would have received his fee simple interest subject only to the two mortgages he had negotiated in favour of C Bank. Instead the titles of both properties were subject to prior mortgages in favour of AA Credit Union and D Inc., which should have been discharged.

*   *   *

The Special Compensation Fund Committee considered compensation claims made by the mortgage lenders and by the new purchasers of the West Side Vancouver Properties #1 and #2.

The Committee noted that, while applications to the Fund are ordinarily considered after the conclusion of discipline proceedings, these applications would proceed early. In the circumstances, the purchaser of Property #2 had moved to be near his sister who was ill. He had sold Property #2 but was unable to deliver up clear title and the prospective purchasers were living in the residence on the understanding that his claim would receive early consideration. Given that Property #1 was subject to one of the same mortgages as Property #2, it was prudent to consider claims involving both properties at the same time. The Committee decided that it would not require the claimants to exercise their civil remedies against Mr. Wirick, given there was little hope of recovery from him.

The Committee found that Mr. Wirick, having received trust funds in his capacity as a lawyer, misappropriated or wrongfully converted the funds in these two transactions. While it need not be established that he was guilty of a criminal act, the Committee noted it must be satisfied that a lawyer has acted dishonestly or fraudulently in appropriating or converting money or property. The BC Court of Appeal had defined the required objective standard of culpability as "conduct which ordinary, decent people would feel was discreditable as being at variance with straightforward or honourable dealings." The Court stated that intention becomes relevant only when an explanation is offered to excuse conduct objectively determined to be dishonest.

Although not every breach of undertaking is dishonest, the circumstances of these claims did not suggest negligence or error, but rather an intention to deceive. Mr. Wirick misled AA Credit Union as to the nature of its security in order to facilitate the misappropriation of trust funds. Similarly, he breached his undertaking to the lawyers acting for subsequent purchasers of the properties to facilitate the misappropriation and wrongful conversion of the purchase funds.

The Committee approved the claims of AA Credit Union and D Inc. with respect to Properties #1 and #2. It noted that, once the claims of those lenders were paid and their charges released, the subsequent purchasers and their institutional lenders would not suffer a loss. The Committee declined to pay amounts claimed by the purchaser of Property #2 to compensate him for bridge financing in the resale of the property, legal fees and an amount he paid to the subsequent purchasers by reason of his inability to complete the sale.

The Committee exercised its discretion to pay interest, based on the special circumstances of these claims. Accordingly, it ordered that interest be paid at the applicable rate until May 24, 2002 and at the applicable rate (to a maximum of 6%) thereafter until November 25, 2002.

Payment of approved claims from the Fund was subject to the following conditions:

  • all claimants must agree to the conditions and, if not, all claims must go back to the Committee for reconsideration;
  • each financial institution submitting a claim must provide a statutory declaration setting out:
  • details of any insurance that might be available to pay these claims or confirmation that it has no such insurance; and
  • whether it has initiated any disciplinary action against any employee or terminated the employment of any employee, or if any employee has resigned as a result of any matter in connection with its claim;
  • all claimants must provide an assignment of their claims against Mr. Wirick, Mr. G and any companies owned by Mr. G that were involved in this matter;
  • AA Credit Union and D Inc. must provide registrable discharges of their respective mortgages;
  • all claimants must provide releases to the Law Society and the Fund.