Special Compensation Fund claims

The Special Compensation Fund, funded by all practising lawyers in BC, provides compensation (on claims prior to May 1, 2004) to people who suffer loss through the misappropriation or wrongful conversion of money or property by a lawyer acting in that capacity.

After May 1, 2004 compensation is provided by trust protection coverage under Part B of the Compulsory Professional Liability Insurance Policy.

Rule 3-39 provides that unless the Committee directs otherwise, the Executive Director may publish and circulate to the profession a summary of the written reasons. In any publication, the claimant may not be identified by name, or otherwise, unless the claimant consents and a lawyer may not be identified unless the Committee finds that the lawyer has misappropriated or wrongfully converted the funds.

Edward Kenny

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 199907

Decision date: March 2, 2005
Report issued: August 29, 2005

Claimant A
Claim approved in part: $12,401

Mr. Kenny acted for a company with respect to its investment scheme. In 1997 he entered into an agreement with A whereby A would place $100,000 USD with the company for investment. A had been introduced to the company’s investment scheme by an advisor (V).

Under the agreement, Mr. Kenny was to hold A’s money in trust until it was exchanged for one year of US treasury bonds in Mr. Kenny’s name, equal to 500% of the capital investment. If the investment was not made within 10 banking days, the money was to be returned immediately to A. Mr. Kenny executed this agreement as “barrister & solicitor on behalf of the fund.”

Mr. Kenny received from A $100,000 USD, which he deposited to trust. He then transferred these funds to a bank account for the company, at which point they were co-mingled with another investor’s funds. The funds were then paid out to other investors and to Mr. Kenny himself on account of fees. None of the funds were exchanged for treasury bonds as specified under the agreement. When A made follow-up enquiries, Mr. Kenny attempted to explain the delay as necessary.

In April 1998 the company refunded $50,000 USD to A, but never refunded the balance of $50,000 USD.

In October 1999 Mr. Kenny admitted to professional misconduct with respect to a number of investors, including A. He acknowledged that he had breached his fiduciary obligations in failing to invest A’s funds as agreed, failing to hold them in trust and failing to return them when required to do so under the agreement.

The Special Compensation Fund concluded that Mr. Kenny was acting as a lawyer in this matter. He had held himself out to A as the company’s lawyer and had received trust funds from A. He also represented that he would provide legal services, such as authenticating a verifiable receipt from a securities firm for the issue of treasury bonds.

The Committee also found that the circumstances supported the conclusion that Mr. Kenny had acted dishonestly and he misappropriated or wrongfully converted the funds. It noted that A’s funds were released without receipt of a bank guarantee or being placed in any investment. Rather, they were paid out to other investors and to Mr. Kenny.

The Committee determined that it would approve A’s claim in part ($12,401 CDN), subject to releases and assignments. The compensation represented 20% of A’s original claim (of $50,000 USD). In exercising its discretion to approve the claim in part, rather than in full, the Committee stated that the Special Compensation Fund is intended to assist innocent victims of dishonest lawyers, not to act as an insurer respecting highly speculative and questionable investment schemes such as this one. Moreover, A had been asked to exhaust his civil remedies, especially by claiming against his investment advisor (V), which he refused to do. The Committee attached considerable weight to that factor.

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 (see Discipline Case Digest 03/05)

Special Compensation Fund Committee decision involving claims 20020278, 20020157 and 20020545

Decision date: June 1, 2005
Report issued: September 1, 2005
Corrigenda date: November 9, 2005

Claimants: Credit Union A, Mr. and Ms. F and Bank B
Payment for Credit Union A approved: $250,444.59 ($217,226.71 and $33,217.88 interest)

In 2001 V Construction Ltd. (a company belonging to Mr. Wirick’s client, Mr. G) sold a lot on Nelson Street to Mr. and Ms. F for $332,000. The lot was then encumbered by three mortgages. In late October 2001, in closing the transaction, Mr. Wirick reported to the solicitor for Mr. and Ms. F that he had discharged the first, second and third mortgages. In fact, contrary to his undertaking, Mr. Wirick did not use the sale proceeds to pay out and discharge, among other charges, the third mortgage of Credit Union A.

Mr. and Mrs. F meanwhile obtained $215,800 to finance their purchase through a mortgage loan from Bank B. The mortgage, which they expected to be a first mortgage, was registered on title.

In April 2002, Mr. Wirick filed a Form C discharge of the Credit Union A mortgage, which Credit Union A alleged was fraudulent. In October 2002, Credit Union A filed a certificate of pending litigation and writ of summons in BC Supreme Court seeking a declaration from the court that the discharge of the mortgage was “fraudulent and as a result void and of no effect.”

On May 12, 2005, in a similar case to this one, Mr. Justice Sigurdson allowed the rectification of title and reinstatement of the Credit Union A mortgage on two other properties, subject to consideration of further evidence and argument on two issues.

The Special Compensation Fund Committee considered claims made by Credit Union A, Mr. and Ms. F and Bank B. The Committee determined that Mr. Wirick had not used the sale proceeds in accordance with his undertaking, and that his breach of undertaking amounted to misappropriation of funds in his capacity as a lawyer. Mr. and Ms. F had sustained a loss since their purchase monies were supposed to be used to pay out the charges on title, but in fact the Credit Union A mortgage was fraudulently discharged from title without being paid out.

Therefore, the Committee decided that if it paid out the Credit Union A mortgage, its claim would be satisfied and Credit Union A must remove its certificate of pending litigation and acknowledge satisfaction of any claim on its mortgage and lawsuit.

The Committee approved payment of $250,444.59 to Credit Union A, subject to various conditions and assignments. By so doing, Mr. and Ms. F would be restored to the position they ought to have been in had Wirick fulfilled his undertakings.