) ) RICHARD KEITH WATSON Appellant – v. –, 2023 ONSC 1154

CITATION : Watson v. Law Society of Ontario, 2023 ONSC 1154 DIVISIONAL COURT FILE NO.: 192/18 DATE: 20230302 ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT The Honourable McWatt A.C.J.S.C.J., Molloy and Chalmers JJ. BETWEEN: ) ) RICHARD KEITH WATSON Appellant – and – THE LAW SOCIETY OF ONTARIO Respondent ) ) ) ) ) ) ) ) ) ) ) ) ) )) ) )) David Moore and Ken Jones , for the Appellant Brian Gover and Dragana Rakic , for the Respondent HEARD at: Toronto on August 15, 2022 by Videoconference MOLLOY J. REASONS FOR JUDGMENT A.

OVERVIEW [ 1 ] Richard Keith Watson is a lawyer practicing in Ontario and licensed by the Law Society of Ontario (“the Law Society”), the regulatory body for lawyers and paralegals in Ontario. In September 2009, the Law Society initiated discipline proceedings against Mr. Watson based on a complaint by Sylvia Sweeney alleging that, while acting as her lawyer, Mr. Watson misappropriated and mishandled trust funds and altered corporate documents.

After investigating the allegations, the Law Society proceeded to a hearing before the Law Society Tribunal Hearing Division, which lasted 56 days before the Law Society sought to withdraw all charges. On April 1, 2013, the Hearing Panel instead dismissed all charges against Mr. Watson. [1] He sought costs. [ 2 ] The costs motion would normally have proceeded before the three-member hearing panel (the “Original Hearing Panel”) that presided over the discipline hearing. However, before the costs motion could be heard, one member of the Original Hearing Panel was appointed to the Bench.

The hearing proceeded before the remaining two members, but they could not agree. A new three-member panel (the “Second Hearing Panel”) was convened to hear the costs motion. Before this panel, Mr. Watson now sought costs of the aborted first costs hearing as well as costs of the discipline proceeding. He also sought disclosure of a memorandum relied on by the Law Society when it decided to proceed with a discipline hearing. On April 19, 2016, the Second Hearing Panel dismissed Mr.

Watson’s motion for production of the memorandum for reasons issued on August 10, 2016. [2] After hearing the motions for costs of the earlier proceedings, the Second Hearing Panel dismissed Mr. Watson’s costs claims in their entirety. [3] For reasons dated November 28, 2016, the Second Hearing Panel awarded the Law Society its costs of the disclosure motion and the costs motions, in the combined amount of $52,000. [4] [ 3 ] Mr. Watson appealed to the Law Society Tribunal Appeal Division, but for reasons dated February 22, 2018, his appeal was dismissed. [5]

[ 4 ] Mr. Watson now appeals to the Divisional Court from the decision of the Law Society Tribunal Appeal Division. B. STATUTORY SCHEME [ 5 ]

Section 33 of the Law Society Act [6] prohibits a licensee from engaging in “professional misconduct or conduct unbecoming a licensee.” One of the functions of the Law Society is to investigate any complaint as to the conduct of a member and determine its merits. Not every complaint will proceed to a hearing.

After an investigation, Law Society staff provides a report to the Proceedings Authorization Committee (“PAC”), which then decides what action should be taken, including whether the matter should be referred to the Law Society Tribunal Hearing Division. [7] [ 6 ] Where the PAC refers a complaint with respect to the conduct of a member to the Hearing Division, the parties will be the Law Society (which plays a prosecutorial role) and the member (essentially, the defendant).

There is scope to add other parties, but that does not arise in this case. [8] Typically, the Hearing Division tribunal is composed of a three-person panel. [9] The Hearing Division Tribunal has broad powers, which include disbarment. [ 7 ] The successful party at a Hearing Tribunal is not automatically entitled to costs.

The Act provides a discretion to award costs under s. 49.28(1) as follows: Subject to the rules of practice and procedure, the costs of and incidental to a proceeding or a step in a proceeding before the Hearing Division are in the discretion of the Division, and the Division may determine by whom and to what extent the costs shall be paid. [ 8 ] The entitlement to costs against the Law Society is also subject to r. 25.01(1) of the Rules of Practice and Procedure of the Law Society Tribunal, [10] which states: Costs may only be awarded against the Society, (

a) in a licensing, conduct, capacity, competence or non-compliance proceeding, (

i) where the proceeding was unwarranted; or (ii) where the Society caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence or other default; and (

b) in a proceeding not mentioned in clause (

a) where the Society caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence or other default. [ 9 ] A party before a Hearing Division Tribunal is entitled to appeal any final order to the Law Society Tribunal Appeal Division. [11] The Appeal Division Tribunal is also typically a panel of three.

It has the jurisdiction to determine any question of fact or law that arises in a proceeding before it. [12] The Appeal Division Tribunal may: make any order or decision that ought to or could have been made by the Hearing Division Tribunal; order a new hearing; or, dismiss the appeal. [13] [ 10 ] For a proceeding that started as a conduct hearing under s. 34 of the Act (which includes this case), the Act provides a right of appeal to the Divisional Court from a final decision or order of the Appeal Division Tribunal. [14] C. PROCEDURAL HISTORY The Complaint and Investigation [ 11 ] On October 24, 2008, Ms.

Sweeney filed a complaint with the Law Society alleging that Mr. Watson had acted as a lawyer for her and her companies, International Performing Arts for All (“IPAFA”) and Elitha Peterson Productions (“EPP”), for a period of two years. The companies were involved in a project to stage a concert series in China in and around the 2008 Olympic and Paralympic Games in Beijing. Ms. Sweeney alleged that Mr.

Watson: misappropriated $150,000; fraudulently altered corporate documents relating to shareholders; falsely altered corporate documents to make himself a 48 percent shareholder of the companies; misappropriated $34,000 of corporate funds to his own use; and misappropriated trust funds. [ 12 ] Mr. Watson’s response was that he had not acted as a lawyer for Ms. Sweeney or her companies, but rather was a business partner and executive in the companies.

He denied any misappropriation, stated that all monies were properly accounted for, and that the $34,000 he received was payment for work he completed. [ 13 ] Joseph DiPietro, a forensic auditor employed by the Law Society, was assigned to conduct the investigation. On March 9, 2009, Mr. DiPietro completed an investigation report that was submitted to Amanda Worley in-house counsel with the Law Society Discipline Committee. In that report, he recommended that the Law Society seek authorization to commence a conduct application against Mr. Watson. On April 1, 2009, subsequent to that report, Mr.

DiPietro conducted a final three-hour interview with Mr. Watson. [ 14 ] On August 17, 2009, Ms. Worley advised Mr. Watson’s counsel that she had completed her review of the file and submitted a letter to the PAC. On August 25, 2009, the PAC authorized conduct proceedings. A Notice of Application was issued on September 11, 2009, alleging four particulars of professional misconduct, namely, that Mr. Watson: (

i) improperly withdrew $178,978 USD from funds received on behalf of his client, IPAFA; (ii) failed to act with integrity in connection with a factoring agreement, in particular, by failing to make adequate disclosure, purporting to transfer IPAFA’s shares to himself without authority, fabricating corporate documents, and signing other documents without authority; (iii) misappropriated a total of $178,978 USD from funds received in trust on behalf of his client IPAFA; and,

(iv) practised law while under suspension. Problems with Disclosure [ 15 ] The Law Society made initial disclosure to Mr. Watson on October 28, 2009. However, shortly before the hearing was to commence, it was discovered that the complete investigation file, including all of Mr. DiPietro’s correspondence, had not been disclosed. As a result, the hearing was adjourned until November 2010. These problems with delayed and incomplete disclosure continued up to, and even after, the commencement of the hearing.

These are detailed in the Second Hearing Tribunal’s decision dismissing Watson’s motion for costs as follows, at paras. 28-37: [28] In August, 2010 the Lawyer’s counsel, David Moore, wrote two letters to Law Society counsel regarding disclosure. He pointed out that Sweeney appeared to have provided the Law Society with certain records supportive of her allegations but had not produced all documents and communications relevant to her allegations. He noted that, given the fundamental issues of credibility between Sweeney and the Lawyer, it was essential for the Lawyer to have access to these files.

He also requested that searches be conducted within certain e-mail addresses used by Sweeney. [29] By letter dated August 17, 1990 [ sic , 2010], Law Society counsel responded that she could not compel third parties to produce documents at the prehearing stage.

She indicated that she would have the investigator meet with Sweeney to ask for certain categories of materials but raised concerns about the relevance of other categories and asked for evidence to establish the relevance of these materials. [30] In October 2010, a large number of e-mails and attachments responsive to certain of the Lawyer’s requests were made available to him in four banker’s boxes at the Law Society. The Law Society took the position that none of these materials were “pertinent,” but nevertheless made them available to the Lawyer.

Many of these documents were in fact helpful to the Lawyer’s position that he had been a senior executive of IPAFA and had extensive authority with respect to the financial affairs of both IPAFA and EPP. [31] The hearing was adjourned yet again in November, 2010 and rescheduled to April, 2011, as a result of the late production of further e-mails from Sweeney. [32] On April 15, 2011, shortly before the hearing was to commence, the Lawyer’s counsel requested the production from Sweeney of QuickBooks accounting records relating to IPAFA and EPP. No explanation of the relevance of these records was provided.

The Law Society initially took the position that they were irrelevant and that the Lawyer had not met his obligation to request further disclosure with due diligence. [33] After the hearing had commenced, the Lawyer renewed his request for these records. On April 27, 2011 the chair made comments on the record about the obvious relevance of these records to the issues in the case, in particular to the allegations made by the Law Society that the Lawyer had received a personal benefit from the Samsung Funds. As a result, a consent order was issued on May 18, 2011 requiring Sweeney to produce these records.

These records ultimately assisted the Lawyer in demonstrating that Sweeney had budgeted to pay him a salary in connection with the Beijing Project. [34] The hearing commenced on April 27, 2011. Sweeney was the first witness. Her cross-examination was adjourned pending the production of the accounting records and the Law Society proceeded to call other witnesses in the interim. [35] In August 2011, during the continued cross-examination of Sweeney, counsel for the Lawyer requested the signed contract between IPAFA and Who’s Who (a Chinese company with which IPAFA had partnered).

Sweeney had only provided the Law Society investigator with a draft. The following day, Sweeney produced the signed contract, which was significantly different than the draft. [36] The cross-examination of Sweeney continued in November and December of 2011.

In December 2011 the Lawyer’s counsel advised Law Society counsel that, based on information he had received from an accounting expert, certain information in EPP’s corporate accounting records had been altered in a manner so as to effectively conceal debts owed to the Lawyer. [37] In March 2012, the Lawyer brought a motion for production of additional records from Sweeney. The panel granted the motion on April 3, 2012. [15] The Conduct Hearing and Decision of the Original Hearing Panel [ 16 ] The hearing into the misconduct allegations began in April 2011 before a three-person panel: Heather J.

Ross (Chair); Adriana Doyle; and Andrew Oliver. It was adjourned multiple times due to ongoing problems with disclosure, as mentioned above. Nearly two years later, after the close of the cross-examination of Ms. Sweeney, counsel for the Law Society sought to withdraw the application as she acknowledged there was no reasonable prospect of proving the allegations. [ 17 ] By then, there had been several teleconference sessions involving counsel, but not witnesses, and 61 hearing days during which 6 witnesses testified.

Of those 61 hearing days, 34 days were spent on the examination-in-chief and cross-examination of the complainant, Ms. Sweeney. [ 18 ] For oral reasons delivered on April 1, 2013, the Original Hearing Panel agreed with counsel for Mr. Watson that his client was “entitled to a public statement that the allegations against [him] have been dismissed” (brackets in original). Instead of permitting the Law Society to withdraw the allegations, the Original Hearing Panel dismissed the entire application.

In coming to that conclusion, the Panel Chair noted that, “ it is clear to the panel that the evidence and credibility of the Complainant is central to the ability of the Law Society to prove its case to the requisite standard of proof.” [16] The First Costs Hearing [ 19 ] Mr. Watson sought costs from the Law Society. In his costs application he sought a declaration that r. 25.01 be declared of no force and effect and that his entitlement to costs should be determined based on the common law. Alternatively, he sought costs pursuant

to that rule. The application proceeded in two parts, with the issue relating to the invalidity of the rule proceeding first. That issue was argued on January 13 and 14, 2014 before the Original Hearing Panel. On May 5, 2014, the Original Hearing Panel issued written reasons dismissing that aspect of the application, with Chair Ross writing the majority decision (Panel Member Doyle concurring) and dissenting reasons by Panel Member Oliver. [17] That decision is not part of the appeal before this court. [ 20 ] The second part of the costs application, Mr.

Watson’s entitlement to costs under r. 25.01, remained to be heard. Before that matter was scheduled, one of the members of the Original Hearing Panel (Panel Member Doyle [as she then was]) was appointed to the Bench. The parties were consulted about how to proceed, and it was determined that the remining two members of the Original Hearing Panel would hear the issue of entitlement to costs.

The remaining panel members relied, in that regard, on s. 4.4(1) of the Statutory Powers Procedure Act , [18] which states that “ [i]f a member of a tribunal who has participated in a hearing becomes unable, for any reason, to complete the hearing or to participate in the decision, the remaining member or members may complete the hearing and give a decision.” [ 21 ] The second part of the costs application was argued before the remaining two panel members of the Original Hearing Panel on March 30, 31, and April 1, 2015. The panel members reserved their decision. Unfortunately, they were unable to agree.

The parties were advised of this impasse and appeared before the Tribunal Chair for a Proceeding Management Conference to determine the appropriate procedural steps. Ultimately, apparently upon the request of both parties, each panel member issued a

summary of what their reasons would have been. These were set out in a decision issued on June 30, 2015. [19] [ 22 ] Chair Ross addressed this procedural step in the Reasons for the Panel’s Failure to Arrive at a Unanimous Decision as follows: The Proceedings Management Conference was held before the Chair of the Law Society Tribunal. As a result of that appearance, the parties asked that, notwithstanding that the two remaining hearing panel members were unable to reach a unanimous decision, each panel member provide reasons for their conclusion.

They asked that the reasons do not address whether in law the motion is dismissed or allowed , and that a final order not be issued. In our view, there would be little utility in providing full reasons for two opposing conclusions when we cannot reach a unanimous decision . In the circumstances, we do find it appropriate to provide a brief sketch of the key elements of our reasons for holding the views each of us has.

These are intentionally meant to be less complete than the reasons we would have provided for a majority or unanimous decision. [Emphasis added.] [20] [ 23 ] Notwithstanding the request by counsel that the reasons not address whether in law the motion is dismissed or allowed, and notwithstanding the panel’s determination that there would be little utility in providing full reasons, Chair Ross set out 21 paragraphs of reasons stating why, in her view, Mr. Watson was not entitled to any costs. She cited case law and provided her

interpretation of the relevant sections of r. 25.01. She also stated that in a previous discipline proceeding, Mr. Watson had been found to have “blurred the lines between business and solicitor-client aspects of the relationship” and that because of his failure to make clear in writing his status as either lawyer or corporate officer to Ms. Sweeney, he “became vulnerable to the kind of allegations” made in the case. [21] Essentially, she found that the credibility issues with Ms. Sweeney only became apparent as a result of the lengthy and skilled cross-examination by Mr.

Watson’s lawyer, which she described as a “death by a thousand cuts.” [22] [ 24 ] Panel Member Oliver provided nine paragraphs of reasons for why he would have awarded costs, primarily based on his conclusion that the investigation was one-sided and not thorough, and that the conduct hearing was therefore unwarranted. In the course of his reasons, he was critical of Mr. DiPietro’s report to the Law Society Discipline Committee, which he said included serious allegations of misappropriation of funds.

He stated that “the report did not express the misappropriation accusations as allegations but as facts.” [23] He then went on to state that the report was completed and submitted almost a month before Mr. DiPietro interviewed Mr. Watson for over three hours and that the key allegations were never put to Mr. Watson. He concluded that because the report did not reflect due diligence, was biased, and led to the issuance of the Notice of Application, Mr.

Watson should have his full costs of the proceeding. [ 25 ] I will deal later in these reasons with the propriety of releasing the Reasons for the Panel’s Failure to Arrive at a Unanimous Decision and the use that was later made of them. [ 26 ] The role of the Original Hearing Panel was not yet concluded. The Law Society took the position that because Mr. Watson did not succeed in obtaining the costs relief sought from the Original Hearing Panel, that meant he had lost his claim, and that was the end of the matter. His only remedy was to appeal; there could be no re-hearing of the costs motion.

After hearing the parties on this issue, both panel members held that if the two members of a two-member panel cannot agree on the result, there has been no decision and that an entirely new panel should be constituted to hear the costs issues. [24] The Second Costs Hearing Panel: Disclosure of the PAC Memorandum [ 27 ] In effect, the first costs hearing before the Original Hearing Panel was a nullity. The parties started over again before a new three-member panel, the Second Costs Hearing Panel, consisting of Chair Peter Wardle and Panel Members Jan Richardson and Frederika Rotter.

Before the Second Costs Hearing Panel, Mr.

Watson sought: (1) production of the PAC Memorandum (the memorandum provided to the PAC when the Notice of Authorization was issued); (2) costs of the conduct hearing that had proceeded before the Original Hearing Panel; and (3) costs of the abortive costs hearing before the remaining two members of the Original Hearing Panel. [ 28 ] The motion for production of the PAC Memorandum proceeded first and was dismissed by the Second Costs Hearing Panel in the unanimous Reasons Dismissing Watson’s Motion for Production . [25] The facts relating to this issue relied on by the Second Hearing Panel included the following: • Mr.

DiPietro completed and signed an investigative report on March 6, 2009, which he passed along to the Law Society Discipline Committee counsel, Amanda Worley, on March 31, 2009. He subsequently interviewed the Mr. Watson in detail on April 1, 2009. It

was the Law Society’s position that the investigation was ongoing at that time. [26] • Ms. Worley reviewed the investigation in summer 2009, and on August 17 she advised Mr. Watson that she had submitted the matter to the PAC for its consideration at its August 25, 2009 meeting. On September 4, 2009, she sent a letter advising Mr. Watson that the PAC had authorized a conduct application. The Notice of Application against Mr. Watson was issued on September 11, 2009. [27] • The PAC materials were referred to by the Law Society in an affidavit it filed in the original costs motion.

The Law Society referred to the fact that discipline counsel had reviewed the evidence and submitted a letter to the PAC, and that the PAC had authorized a conduct application based on the investigation. The contents of counsel’s letter to the PAC were otherwise not disclosed. [28] • The Law Society also referred to the PAC materials in its written argument on the original costs motion, where it affirmed that discipline counsel reviewed the investigation and subsequently submitted the matter to the PAC.

Again, the Law Society did not refer to the contents of the material submitted to the PAC. [29] • Counsel for the Law Society also referred to the PAC process in oral argument, explaining that the contents of the PAC Memorandum are relied on by the PAC in its decision to authorize. Counsel suggested that the results of Mr. Watson’s April 1, 2009 interview with Mr.

DiPietro would have been included in the PAC Memorandum. [30] [ 29 ] Relying on a number of previous Law Society Tribunal decisions, the Second Costs Hearing Panel held that there was a reasonable expectation of privacy in the PAC Memorandum and that it was confidential and privileged. Further, that privilege was not waived merely because counsel referred to it in describing the procedural steps taken in the hearing, given that the actual content of the memorandum was not disclosed.

Given that conclusion, the Second Costs Hearing Panel declined to deal with whether the principles of work product or litigation privilege applied. [ 30 ] The Second Hearing Panel ruled that the PAC Memorandum was not relevant to the issue of whether the conduct hearing was “unwarranted” and that a determination as to whether it was unwarranted could be based solely on the evidentiary record before the tribunal, without recourse to the material that was before the PAC. [31] Further, the PAC Memorandum was irrelevant to whether the Law Society unreasonably caused costs to be incurred without reasonable cause, as this branch of the test is directed towards “the procedural efficiency and care with which the conduct application is conducted.” [32] [ 31 ] In the result, the Second Hearing Panel ruled that Mr.

Watson was not entitled to production of the PAC Memorandum for purposes of the costs hearing. The Second Costs Hearing: Watson’s Entitlement to Costs [ 32 ] After ruling that the PAC Memorandum would not be produced to Mr. Watson, the Second Costs Hearing Panel proceeded to a separate hearing on the issue of Mr. Watson’s claim for costs. In the Reasons Dismissing Watson’s Motion for Costs, the Second Costs Hearing Panel held Mr. Watson was not entitled to any costs.

Those reasons were authored by Chair Wardle and were unanimous. [ 33 ] In its reasons, after first setting out the factual context, the Second Costs Hearing Panel traced the history of the applicable costs provisions and made the following general rulings: (

i) costs of a Law Society discipline proceeding do not follow the event, but rather must be determined in a manner that recognizes and respects the Law Society’s public interest mandate; (ii) the risk of costs must not deter the Law Society from vigilantly fulfilling its public interest mandate; (iii) for a self-governing profession to maintain public confidence in its ability to regulate the profession, it is sometimes important to publicly air serious cases; (iv) the costs regime for discipline cases is covered by r. 25.01 of the Law Society Tribunal’s Rule of Practice and Procedure ; (

v) some of the historic jurisprudence on costs had not developed in a coherent fashion due to different versions of the rules relating to costs entitlements in place at various time. Therefore, it was appropriate to reformulate the test under r. 25.01; (vi) rule 25.01 contemplates costs being awarded against the Law Society under two branches: Branch 1, where the licensee can establish that the proceeding was unwarranted at the outset, and Branch 2, where (

a) the Law Society, in the conduct of the hearing, caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence, or other fault, or (

b) where the proceeding becomes unwarranted at some point after commencement; (vii) under Branch 1 of the rule, “unwarranted” had been interpreted as meaning “without reasonable justification, patently unreasonable, malicious, taken in bad faith or for a collateral purpose.” For purposes of the hearing before it, the Second Costs Hearing Panel treated an “unwarranted” conduct application as one commenced or continued without a reasonable prospect of proving professional misconduct to the requisite standard, namely on a balance of probabilities based on clear, cogent, and convincing evidence; (viii) the burden of establishing that a proceeding was unwarranted rests with the party making that allegation; (ix) the Law Society’s assessment must be analyzed at the time it was made, rather than with the benefit of hindsight; and (

x) even if the tribunal concludes that proceedings were unwarranted, there is a residual discretion not to award costs based on the circumstances of the case. [33] [ 34 ] In its analysis of whether Mr. Watson met the test under Branch 1, the Second Costs Hearing Panel considered the scope of the investigation, the investigative steps taken by the Law Society investigator, Mr. DiPietro, and the “red flags” relied upon by the defence.

[ 35 ] The panel disagreed with Mr. Watson that the critical issue was his role and authority within IPAFA and EPP and noted two areas of investigation (the “Samsung Funds” and the “Liquid Capital loan”) that gave rise to serious concerns about Mr. Watson’s conduct. In this regard, the panel noted: The Samsung Funds were deposited into the Lawyer’s trust account on August 1, 2008.

He had advised Samsung that “I am a lawyer in Canada and will be receiving the Contract Funds into a Legal Trust Account for IPAFA.” Despite this, he immediately transferred the Samsung Funds into an account in the name of Evergreen, a company under his sole control. Those funds were then disbursed for a variety of purposes, some connected with the Beijing Project, some not. Funds were also transferred from the Evergreen account into the account of a second company, 1355394 Ontario Inc. (“135”), controlled by the Lawyer, from where they were invested in a mortgage.

It is undisputed that Sweeney knew nothing about what happened to the funds. At the time of the deposit of the Samsung Funds, the Lawyer was suspended pursuant to a prior order. With respect to the Liquid Capital loan, the Lawyer had referred to himself as General Counsel to IPAFA in an undertaking given to the lender. The funds were deposited into his trust account. Sweeney had never been told that the loan had been approved or advanced. The loan application showed the Lawyer as having a 48% interest in IPAFA, which Sweeney denied having given him.

The Lawyer had advised Sweeney by e-mail dated October 28, 2008 (the date her complaint was received by the Law Society) that he had “put shares into my name solely for the purposes of putting the Liquid Capital deal in place” and had then “signed the shares back,” comparing himself to a plumber who comes to a house, fixes a leak and then “puts everything all back together again the way it was” (the “Plumbing E-mail”).

The Liquid Capital loan funds had also been transferred to an account in the name of Evergreen, from where some of the funds had been disbursed appropriately in connection with the Beijing Project and the remainder had found their way to 135. On November 21, 2008 the Lawyer provided Sweeney with a reconciliation that demonstrated that he had retained approximately $34,000 out of the Samsung Funds and Liquid Capital loan funds for “compensation.” These undisputed facts obtained during the investigation raised numerous concerns about the Lawyer’s conduct.

For example, what was Evergreen and why were the funds transferred into its name? Why were funds moved from Evergreen to 135? Why was Sweeney not told that this was taking place? Why were the funds deposited into the Lawyer’s trust account if he was not acting as a lawyer? Was his conduct here similar to that for which he had just been disciplined? Was it appropriate for him to pay himself out of the loan proceeds? Was he practising while under suspension? [34] [ 36 ] The panel held that the investigation centered on a forensic tracing exercise to determine what happened to the funds Mr. Watson received.

The panel rejected the submission that the investigation was one-sided and sought only to find evidence to support Ms. Sweeny’s allegations. The evidence showed that the investigator asked Ms. Sweeny and other witnesses a number of questions arising from information obtained from interviews with Mr. Watson. Ms. Sweeny had told the investigator that the lines were blurred as to whether Mr. Watson was sometimes acting as a business associate rather than a lawyer.

The panel concluded: As outlined earlier, the Lawyer concedes that the investigation was not carried out in bad faith, maliciously or for an improper purpose. He does allege, however, that the investigation was biased, in the sense that it was one-sided, and simply attempted to gather evidence to support Sweeney’s allegations.

He points to a number of things to support this allegation, including: certain statements made by DiPietro in e-mails to Sweeney, his failure to look for evidence to support the Lawyer’s position, his rush to judgment in his investigation report, and Law Society counsel’s statements in the third party production motion. The record does not support this allegation. DiPietro testified before us that he understood his obligation was to look for both inculpatory and exculpatory evidence and that he had an obligation to be fair to the Lawyer. This evidence was not impugned in cross-examination.

Certain e-mails can be read as if DiPietro was simply asking Sweeney to provide confirmatory evidence; however, it is also clear (particularly from his December 23, 2008 e-mail, discussed further below) that he did ask her to comment on the Lawyer’s explanations so that he could evaluate the two competing versions of events. As outlined earlier, DiPietro interviewed several witnesses at the request of the Lawyer.

Most importantly, DiPietro appears to have relied on the forensic banking analysis to support his investigative conclusions, perhaps because he knew that Sweeney and the Lawyer had widely varying versions of what had taken place. We agree that it is unfortunate that DiPietro finalized his investigative report before he interviewed the Lawyer for the last time. However, nothing appears to turn on this for purposes of this motion. [35] [ 37 ] One of the arguments advanced by counsel for Mr.

Watson in support of his position that the investigation was biased and one-sided was that counsel for the Law Society at earlier production motions had repeatedly stated that the duty of the Law Society in its investigation was to produce evidence to support the allegations made, and not to investigate issues involving Ms. Sweeny’s credibility or to inquire about exculpatory evidence that supported Watson’s defence.

The Second Costs Hearing Panel noted that these statements had been made by counsel at that time (not the counsel before us) and agreed that this is not an accurate statement as to the Law Society’s obligations. The panel referred to the comments as “troubling” but found that because there was no further evidence to support the argument that the investigation was one-sided, counsel’s statements in argument were not sufficient to support such a finding. [ 38 ] The panel considered the “red flags” which Mr. Watson argued should have alerted the investigator to Ms. Sweeny’s utter lack of credibility.

One of these red flags (an allegation of forgery) was put to Ms. Sweeny and she explained she had simply been mistaken, which the investigator accepted as possible. The investigator considered the evidence of three witnesses about Ms. Sweeny’s history of lying, but also noted that other witnesses supported her position. He considered the numerous documents in which Ms. Sweeny referred to Mr. Watson as her business partner, but also noted that she said he had multiple roles and the fact that Mr.

Watson himself had done things consistent with being the corporate lawyer (such as receiving funds into his trust account). The investigator failed to do a corporate search, which would have revealed that Ms. Sweeny had lied about Mr. Watson fraudulently altering the Articles of Amendment for IPAFA.

The panel considered this omission and found it to be “inexplicable in retrospect” but that it was inappropriate to review the investigation with the benefit of hindsight. [36] [ 39 ] The panel concluded that the red flags were not definitive and “would [not] have led the Law Society to conclude that Sweeny’s evidence was so fundamentally flawed as to prevent it from being accepted by a hearing panel.” [37] The investigator

recognized there were issues of credibility involved but did not conclude that Ms. Sweeny’s position was devoid of merit. The panel held, “[w]e w ere provided with no authority for the proposition that an investigator has a legal obligation to cross-examine a complainant as if she were giving evidence at trial.” [38] Although the investigation could have been more thorough and Ms.

Sweeny could have been interviewed more vigorously, the panel held that this would not have changed the result, stating that “this appears to have been one of those classic cases where the public interest demanded a hearing so that the serious allegations she made against the Lawyer, which appeared to have been corroborated in a number of respects, could be publicly aired and determined on their merits.” [39] [ 40 ] With respect to Branch 2, the panel held that there was no single point during the hearing that demonstrated the prosecution was doomed to fail, and therefore no point at which it could have been said that it was apparent the proceeding had become unwarranted. [ 41 ] The panel also considered whether the Law Society had wasted costs by undue delay, negligence, or other default and concluded it had not. [ 42 ] With respect to the protracted delays and disputes in obtaining disclosure, the panel held: In hindsight, the Society’s initial position with respect to the relevance of certain documents he sought appears to have been wrong.

However, this is not the same as saying that those positions were unreasonable. As said in Law Society of Upper Canada v. Feldman : “There is no ‘wasting’ of costs or ‘other default’ in simply advancing the losing argument.” … It is also unclear why the Lawyer did not take steps earlier to compel the production of records from Sweeney. In her letter of August 17, 2010, counsel for the Law Society pointed out to counsel for the Lawyer that she could not compel Sweeney to produce records at the prehearing stage.

However, the Lawyer could have compelled Sweeney by way of summons duces tecum to produce documents at the hearing. The Law Society took the position on this motion that the Lawyer should have brought his third party production motion much earlier. There appears to be some merit to this argument.

In short, while the history of the proceeding suggests that at times the Law Society was less than responsive to the Lawyer’s requests, we cannot find that it had no defensible legal basis for the positions it took, or that it wasted identifiable costs by an unreasonable tactic. [Footnotes omitted.] [40] [ 43 ] In the decision’s concluding paragraphs, the panel referred to the task of obtaining all the relevant documents and using them to impeach Ms.

Sweeny’s credibility as a “monumental struggle which took place over the entirety of 56 days of hearing between April 2011 and April 2013.” [41] The panel then adopted the statement of the Chair of the abortive Original Hearing Panel: “[a]s Ms. Ross put it, Sweeney’s credibility at the hearing was ‘gradually eroded through the indefatigable cross-examination by the lawyer for the Respondent. The complainant’s credibility suffered a ‘death by a thousand cuts’.’” [42] [ 44 ] The panel held that the destruction of Ms.

Sweeny’s credibility could not have been reasonably foreseen at the outset even if the investigation had turned up all the documents eventually produced at the hearing, stating that it took “a lengthy hearing and a skilled and determined cross-examination” which is “precisely why some cases have to be tried.” [43] [ 45 ] The Second Hearing Panel also dismissed Mr. Watson’s claim for costs of the proceedings before the First Hearing Panel.

Its entire reasons on that point being, “ [w]e see no basis on which to award the Lawyer his costs of the first costs motion, given the conclusion we have reached.” [44] The Second Costs Hearing: The Law Society’s Entitlement to Costs [ 46 ] In a separate decision, Reasons Granting Costs to the Law Society, the Second Costs Hearing Panel awarded $52,000 in costs to the Law Society. The Law Society had sought $22,317 for costs of the motion for disclosure of the PAC Memorandum and $81,073 for the costs proceeding before the Second Costs Hearing Panel.

The Law Society argued that it was necessary to incur such costs because the motion raised significant issues involving the integrity of the Law Society’s investigation and the precedent-setting amount of costs claimed by Mr. Watson (approximately $900,000). [ 47 ] Counsel for Mr. Watson did not challenge the quantum of costs claimed, but argued that, as a threshold issue, no costs should be awarded against Mr. Watson given the context (a lengthy unsuccessful prosecution with serious allegations of misconduct and substantial costs thrown away because of the abortive hearing before the Original Hearing Panel).

With respect to the PAC Memorandum motion, counsel pointed out that success was divided given that the panel directed the Law Society that it could not rely upon the PAC Memorandum during the course of its costs submissions. [ 48 ] The Second Hearing Costs Panel awarded costs to the Law Society for the PAC Memorandum disclosure motion, reasoning that the motion was unnecessary and did not raise any novel arguments. [ 49 ] With respect to the costs hearing itself, the Second Costs Hearing Panel noted that the position taken by Mr.

Watson on the motion “inevitably drew the panel into a painstaking examination of a 56-day hearing, including a review of voluminous exhibits and transcripts” as well as oral testimony, which involved 3 days of hearing time and lengthy written submissions. [45] The panel therefore accepted that the Law Society incurred substantial fees and disbursements. However, the panel recognized that “broader questions of fairness” required a recognition of the enormous cost burden on Mr.

Watson in proceedings in which he was wholly successful, as well as the costs thrown away in respect of the abortive first cost hearing, which was neither party’s fault. Accordingly, the panel discounted the amount the Law Society should receive in costs and awarded $40,000 for the second costs hearing. The Appeal Division Hearing [ 50 ] Mr. Watson appealed from the Second Costs Hearing Panel’s decisions: (1) dismissing his motion for production of the PAC Memorandum; (2) denying him costs of the first costs motion and the second costs motion; and (3) awarding costs to the Law Society

for the production motion and the costs proceedings before the Second Costs Hearing Panel. That appeal was heard by a five-memberpanel (Chair Christopher D. Bredt and Panel Members Malcolm Mercer, Sandra Y. Nishikawa [as she then was], Linda Rothstein andMarilyn Thainon) on April 20 and 21, 2018. After the hearing and before a decision was made, Panel Member Nishikawa (as she thenwas) was appointed to the Bench. She did not participate in the decision.

In the unanimous Reasons Dismissing the Appeal of theSecond Hearing Panel Decisions released on February 18, 2018, the Appeal Division Panel upheld all the decisions made by the SecondCosts Hearing Panel. The Appeal Division Panel further ordered that if the Law Society wished to request costs of the appeal, this couldbe done by written submissions. [51] The Appeal Division Panel held that the standard of review it would apply to review the decisions was correctness withrespect to issues of law, and reasonableness with respect to issues of mixed fact and law.

It adopted the definition of “reasonableness” setout by the Supreme Court of Canada in Law Society of New Brunswick v. Ryan[46] and Dunsmuir v. New Brunswick:[47] The Supreme Court of Canada has provided guidance on the meaning of a reasonableness standard of review. In Law Society of New Brunswick v. Ryan, the Supreme Court defined an “unreasonable decision” as follows: A decision will only be unreasonable if there is no line of analysis within the given reasons that could reasonably lead the tribunal fromthe evidence before it to the conclusion at which it arrived.

If any of the reasons that are sufficient to support the conclusion are tenablein the sense that they can stand up to a somewhat probing examination, then the decision will not be unreasonable and a reviewing courtmust not interfere (see [Canada (Director of Investigation and Research) v. Southam Inc., (SCC), [1997] 1 S.C.R. 748],at para. 56). This means that a decision must satisfy the reasonableness standard if it is supported by a tenable explanation even if thisexplanation is not one that the reviewing court finds compelling (see Southam, at para. 79). In Dunsmuir v.

New Brunswick, the Supreme Court of Canada commented as follows on the nature of a reasonableness standard ofreview: A court conducting a review for reasonableness enquires into the qualities that make a decision reasonable, referring both to the processof articulating reasons and to outcomes. In judicial review, reasonableness is concerned mostly with the existence of justification,transparency and intelligibility within the decision making process.

But it is also concerned with whether a decision falls within a rangeof possible, acceptable outcomes which are defensible in respect of the facts and the law. [Footnotes omitted; emphasis and brackets in original.][48] [52] The Appeal Division Panel held that the formulation of the test to be applied in determining entitlement to costs is a questionof law and is required to be correct, without deference to the reasoning of the Second Costs Hearing Panel.

All other issues were foundto be issues of mixed law and fact and reviewable on a reasonableness standard.[49] [53] The Appeal Division Panel recognized the general principle that issues of natural justice and procedural fairness arereviewable on a standard of correctness. However, it pointed out that there was no issue of fairness with respect to the hearing itself, butrather as to the conduct of the Law Society’s investigation prior to the hearing.

Therefore, the Appeal Division Panel held that theSecond Hearing Panel’s conclusions about that process were only required to be reasonable.[50] [54] The Appeal Division Panel upheld the Second Costs Hearing Panel’s decision that Mr. Watson was not entitled to productionof the PAC Memorandum.

The Appeal Division Panel first held that the Second Costs Hearing Panel correctly identified the legalprinciples to be applied in determining whether the PAC Memorandum was privileged (the Wigmore criteria as set out in Slavutych v.Baker[51]).[52] Next, the Appeal Division Panel held that the application of the facts to those principles by the Second Costs HearingPanel was reasonable, noting that the PAC Memorandum is merely a

summary and recommendation and does not include evidence notalready disclosed to the member facing discipline. The Appeal Division Panel held that the Second Cost Hearing Panel’s conclusion thatprivilege had not been waived was reasonable, and that there was no fairness issue given that there was no allegation that the proceedingwas initiated maliciously, in bad faith, or for a collateral purpose. Whether the proceeding was “unwarranted” involved an assessment ofthe evidence available, all of which had been disclosed to Mr.

Watson. [55] On the issue of entitlement to costs, the Appeal Division Panel held that the Second Costs Hearing Panel correctly stated thelegal test applicable to a motion for costs against the Law Society.[53] It also held that the panel applied the correct approach indetermining whether a proceeding was “unwarranted” under Branch 1 of the test and how to deal with issues of credibility within thatdetermination.[54] Further, the Appeal Tribunal held that the Second Hearing Tribunal had correctly stated the principles to be appliedin determining whether costs were appropriate under Branch 2 of the test.

In short, the Appeal Division Panel found that there were noerrors of law committed by the Second Costs Hearing Panel in relation to the test it had to apply in determining costs. [56] The Appeal Division Panel reviewed the reasons given by the Second Costs Hearing Panel in rejecting Mr. Watson’sentitlement to costs under both Branch 1 and Branch 2 of r. 25.01 and found them to be reasonable.

The Appeal Division Panel found thatthe ultimate conclusion of denying costs “falls within a range of possible, acceptable outcomes that are defensible in respect of the factsand the law.”[55] In coming to that conclusion, the Appeal Division Panel specifically referred to the reasons of the Second CostsHearing Panel quoting the Chair of the First Hearing Tribunal (Ms. Ross): “Sweeny’s credibility at the hearing was ‘gradually erodedthrough the indefatigable cross-examination by the lawyer for the Respondent.

The complainant’s credibility suffered a ‘death by athousand cuts’.”[56] [57] The Appeal Division Panel agreed with the Second Costs Hearing Panel that any entitlement to costs thrown away as a resultof the first costs hearing was governed by r. 25.01 and held that the Second Costs Hearing Panel’s reasons for refusing such costs wereadequate and its decision reasonable. [58] Before the Second Costs Hearing Panel, the Law Society had sought its costs of $22,000 for the disclosure motion and costsof $82,000 for the second costs proceedings.

The Appeal Division Panel declined to interfere with the Second Costs Hearing Panel’scosts award of $52,000 to the Law Society ($12,000 for the disclosure motion and $40,000 for the costs hearing) on the basis that “this

decision was a discretionary one which is not plainly wrong or based on an error in principle.” [57] D. ISSUES ON THIS APPEAL [ 59 ] This appeal raises the following issues: (

i) What is the appropriate standard of review? (ii) Was Mr. Watson entitled to production of the PAC Memorandum? (iii) Were the investigation against Mr. Watson and the decisions made and positions taken by the Law Society during the merits hearing in accordance with principles of fairness and natural justice? (iv) Did the Appeal Division Panel err in failing to hold that Mr. Watson was entitled to costs of the merits hearing? (

v) Did the Appeal Division Panel err in failing to hold that Mr. Watson was entitled to costs of the abortive costs hearing before the Original Hearing Panel? (vi) Did the Appeal Division Panel err in awarding costs of the appeal to the Law Society? E. THE STANDARD OF REVIEW [ 60 ] At the time of the hearings in this matter, and at the time the parties filed their original factums on this appeal in 2018, the standard of review was governed by the Supreme Court of Canada’s decision in Dunsmuir , as correctly articulated in the reasons of the Appeal Division Panel.

Under that regime the standard applied by this court in reviewing decisions of the Appeal Division was, for the most part, reasonableness. The standard applied by the Appeal Division Panel would have been correctness on questions of law and reasonableness for findings of fact or mixed fact and law. [ 61 ] In December 2019, the Supreme Court of Canada released its decision in Canada (Minister of Citizenship and Immigration) v. Vavilov , [58] which changed the standard to be applied with respect to statutory appeals.

Pursuant to a direction of Corbett J. on April 6, 2022, the parties filed supplementary factums addressing this issue. [ 62 ] In Vavilov , the Supreme Court held that where (as here) the legislature has provided a statutory right of appeal from an administrative tribunal to a court, appellate standards of review will apply. [59] Thus, the applicable standard will depend on the nature of the question. For questions of law, the decision-maker is required to be correct.

For questions of fact, or for questions of mixed fact and law where the legal principle is not readily extricable, the appellate court is only entitled to interfere if there is a palpable and overriding error. [60] [ 63 ] The standard articulated in Vavilov applies to this court’s analysis of the decision of the Appeal Division Panel. In Law Society of Ontario v.

Diamond , [61] the Ontario Court of Appeal considered a decision of the Ontario Divisional Court delivered in May 2019, dismissing an appeal from a decision of a Law Society Appeal Tribunal from September 2017 (both lower decisions having been made prior to Vavilov ).

The Court of Appeal held that in reviewing the Divisional Court’s decisions, it essentially “steps into the shoes” of the Divisional Court. [62] Further, the Court of Appeal held that the standard of review for the Divisional Court to apply post- Vavilov would have been correctness for errors of law, and palpable and overriding error for mixed questions of fact and law. The Court of Appeal determined that the issue in the case was a question of mixed fact and law, from which the legal principle was not extricable, such that the applicable standard was palpable and overriding error.

Finally, the Court of Appeal applied that standard to the decisions below and held that there was no palpable or overriding error made by the initial Law Society Tribunal Hearing Division, nor by the Appeal Division. Accordingly, the Court of Appeal dismissed the appeal from the decision of the Divisional Court, upholding those two Law Society Tribunal decisions. [ 64 ] It follows from this decision, that the standard to be applied by this court to the Appeal Division decision is the standard test on appeal, as established in Housen .

Further, it is a necessary implication that the standard to be applied by the Law Society Tribunal Appeal Division to decisions of the Hearing Division is also the Housen test, as was confirmed by this court in Khan v. Law Society of Ontario . [63] [ 65 ] The Khan decision also provides a useful

summary of the appellate standard of review applicable in this case, which I adopt, as follows: Where a ground of appeal raises an issue of law alone, the standard of review is correctness. Where the ground of appeal raises a question of fact, the appellate court must pay substantial deference to it. Before it may properly interfere, the appellate court must conclude that the submitted error amounts to a “palpable and overriding error”. The word “palpable” means “clear to the mind or plain to see”, and “overriding” means “determinative” in the sense that the error “affected the result”.

The Supreme Court has held that other formulations capture the same meaning as “palpable error”: “clearly wrong”, “unreasonable” or “unsupported by the evidence” . Examples of palpable error include: (

a) findings made in the complete absence of evidence (this could also amount to an error in law); (

b) findings made in conflict with accepted evidence; (

c) findings based on a misapprehension of the evidence; (

d) findings of fact, drawn from primary facts, that are a result of speculation rather than inference; and (

e) findings of fact based on evidence that has no evidentiary value because it has been rejected by the trier of fact. [ 66 ] Matters of mixed fact and law lie along a spectrum; where the error of the decision-maker can be traced to a clear error in principle, it may be characterized as an error of law and subjected to a standard of correctness; where the legal principle is not readily extricable, then the matter is subject to standard of palpable and overriding error. [Footnotes omitted; emphasis added.] [64] There is a

slightly more nuanced approach for appellate review of costs awards. As stated by Swinton and Backhouse JJ. in Dell v. Zeifman Partners Inc. [65] (a post- Vavilov decision): However, it is important to remember that the present appeal is from a costs award. An award of costs is in the discretion of the judge or the administrative tribunal that makes the award. Appellate courts do not interfere with orders of costs made by a judge unless there has been an error of principle, or the award of costs is plainly wrong ( Hamilton v. Open Window Bakery Ltd. , 2004 SCC 9 at para. 27 ).

A similar approach should be taken in an appeal from a costs decision of an administrative tribunal. [ 67 ] Vavilov does not change the standard of review for issues of procedural fairness and natural justice. An administrative tribunal of the nature involved here is required to adhere to principles of natural justice and procedural fairness and a failure to do so will result in the decisions being set aside. Issues of deference do not arise in determining the issue.

What the reviewing court must decide is whether there was an appropriate level of procedural fairness having regard to the principles established in Baker v. Canada (Minister of Citizenship and Immigration) . [66] However, there may be findings of fact underlying the assessment of what happened and, therefore, whether there was a breach of fairness.

If those facts are extricable issues from the law to be applied, the standard of review would be palpable and overriding error. [ 68 ] Thus, to summarize, the appropriate standard of review with respect to all the decisions under review is correctness for questions of law and palpable and overriding error for questions of fact and mixed questions of fact and law where the law is not extricable from the facts. Given the nature of the tribunals involved, and the implications for the lawyers subject to the discipline process, a high level of procedural fairness and natural justice is required.

Failure to comply with such standards would result in the decisions being set aside. F. ANALYSIS: PRODUCTION OF THE PAC MEMORANDUM [ 69 ] It is important to distinguish between Mr. DiPietro’s investigation report (which was forwarded to Law Society counsel, Ms. Worley, on March 31, 2009) and the PAC Memorandum (which was prepared by Ms. Worley and provided to the PAC in summer 2009 prior to the PAC meeting on August 25, 2009). The investigation report was produced to Mr. Watson in advance of the hearing and was an exhibit to the affidavit of Jandina Ravao, which was filed by the Law Society on Mr.

Watson’s application for costs.

The Law Society objected to disclosing the PAC Memorandum, which was the subject of the motion for production and one of the issues on this appeal. [ 70 ] The Appeal Division Panel found that the PAC Memorandum was both irrelevant and privileged, and that fairness did not require its disclosure. [ 71 ] Relevance is a question of law. [67] As such, the tribunal is required to be correct on this issue. “To be relevant, the evidence must not only be logically relevant but must be sufficiently probative to justify admission.” [68] Relevance is both “a requirement that the evidence have a tendency as a matter of human experience and logic to make the existence or non-existence of a fact in issue more or less likely than it would be without that evidence” (i.e., logical relevance) and “a requirement that evidence be not only logically relevant to a fact in issue, but also sufficiently probative to justify its admission despite the prejudice that may flow from its admission” (i.e., legal relevance). [69] It is important not to lose track of the central issue to be determined on the eligibility for costs, which is whether the proceeding was “unwarranted.” That must not be confused with a review and examination of whether, on the evidence before it, the PAC should or should not have authorized a conduct hearing.

An examination of whether the proceeding was unwarranted may well inquire into the adequacy or fairness of the investigation conducted by the Law Society, but that is not the same thing as a judicial review of the internal PAC decision-making process. [ 72 ] Suppose, for example, a hypothetical case in which only a small portion of the evidence available was provided to PAC and a hearing was ordered. At the hearing itself a huge volume of evidence was provided to the tribunal.

In that situation, the question would be whether, on the whole of the evidence the proceeding was warranted, and not whether it was warranted based on the small amount of evidence provided to the PAC. That is not to say that this happened here. However, there was considerable discussion before the tribunal about the nature of the PAC Memorandum. [ 73 ] In the absence of any actual evidence, counsel for the Law Society made representations to the tribunal about the content of the PAC Memorandum. For example, Mr. Watson’s counsel had pointed to the unfairness of Mr.

DiPietro submitting his final report on March 9, 2009, which necessarily would not have included any information and documents received from his final interview with Mr. Watson three weeks later. In argument, counsel for the Law Society stated that the PAC Memorandum would have included information about the April 1, 2009 interview with Mr. Watson.

Not only is that inappropriate as a factual submission in the absence of an evidentiary record, it is unfair to opposing counsel who, in the absence of the memorandum, is completely unable to refute it. [ 74 ] Some of the representations made by counsel found their way into the reasons of the tribunals. For example, the Appeal Division Panel stated that the PAC Memorandum “summarizes and analyzes evidence” and “does not include evidence not disclosed elsewhere.” [70] All of these references are unfortunate, as they only serve to muddy the waters. The issue here is relevance.

The only relevance of the PAC authorization is that it is a required step in the process towards a hearing, and that it was obtained. What the PAC did or did not have before it when it made its decision is completely irrelevant to the issue of whether, at the outset of the hearing, on the whole of the evidence available to the Law Society, the proceedings were unwarranted.

As pointed out by the Appeal Division Panel, the situation might be different if there was an allegation that the Law Society acted in bad faith or that the proceedings were initiated for a collateral purpose. [71] However, there is no such allegation here. [ 75 ] Accordingly, I agree with the Appeal Division Panel’s conclusion that the PAC Memorandum is irrelevant to the issue of costs. [ 76 ] With respect to the question of whether the PAC Memorandum was privileged, the Appeal Division Panel correctly identified the legal principles to be considered in determining the issue, relying on the four Wigmore criteria, as set out by the Supreme Court of Canada in Slavutych v.

Baker . [72] Those four criteria are as follows:

(1) The communications must originate in a confidence that they will not be disclosed.

(2) This element of confidentiality must be essential to the full and satisfactory maintenance of the relation between the parties.

(3) The relation must be one which in the opinion of the community ought to be sedulously fostered.

(4) The injury that would inure to the relation by the disclosure of the communications must be greater than the benefit thereby gained for the correct disposal of litigation. [73] [ 77 ] Applying the first three of those principles to the nature of the PAC Memorandum and the circumstances in which it was created and used, is a question of mixed fact and law.

In my view, the Appeal Division Panel committed no palpable error in that analysis. [ 78 ] The fourth criterion requires the weighing of the injury that would inure to the Law Society if PAC Memoranda were not protected from disclosure to the benefit that would be gained if it was disclosed. This is a question of mixed fact and law, but is also the kind of decision-making to which greater deference is typically given by the appellate court. That said, in conducting the weighing process, it is necessary for the tribunal to apply the correct law, which includes relevance.

As I have already indicated, given that the PAC Memorandum is not relevant to the central issue in the proceeding, the balancing exercise at the fourth step, is properly balanced in favour of non-disclosure. [ 79 ] I do not necessarily agree with the Appeal Division Panel’s conclusion that the Law Society did not waive any privilege attaching to the PAC Memorandum. In my view, by making representations as to what was or was not contained in the PAC Memorandum, counsel for the Law Society may well have waived the privilege, at least in part.

However, given that the PAC Memorandum is irrelevant, it does not matter whether privilege was waived. Irrelevance, standing alone, is sufficient to deny production. [ 80 ] Finally, on the issue of fairness, I again

part company somewhat with the conclusion of the Appeal Division Panel. In my view, it is fundamentally unfair for the Law Society to resist production of a document by referring to its nature and contents during argument, without there being some evidence before the tribunal. How can counsel for Mr. Watson respond to such arguments without having the document itself? Counsel for the Law Society could have filed affidavit material about the general nature of the PAC Memorandum and its purpose, or a redacted version removing advice and opinion could have been filed.

However, given that I have found the memorandum to be irrelevant to the question of costs, there is no overall unfairness for Mr. Watson. [ 81 ] Finally, because of references in the reasons of the Hearing Division and Appeal Division panels to the content of the PAC Memorandum, I had concerns that the tribunal members had the PAC Memorandum, but it had not been given to counsel for Mr. Watson. In my view, this would raise issues of procedural fairness. I raised this issue with counsel during the argument of this appeal.

Subsequently, counsel provided a joint written submission to this court confirming that the PAC Memorandum had not been provided to any of the panels. That resolves my concerns. [ 82 ] Accordingly, I conclude that there is no issue of procedural fairness or natural justice requiring the production of the PAC Memorandum to Mr. Watson. G. ANALYSIS: ISSUES OF FAIRNESS IN THE CONDUCT OF THE INVESTIGATION AND POSITIONS TAKEN BY THE LAW SOCIETY DURING THE MERITS PROCEEDING Position of the Appellant [ 83 ] Mr.

Watson argues that the Law Society, through its investigator and in-house legal counsel, failed to adhere to important principles of procedural fairness and natural justice in the course of the investigation and the initial stages of the Merits Hearing. He alleges that the investigation was one-sided and focused only on finding support for Ms. Sweeny’s allegations, rather than searching for the truth in an even-handed manner. Even after the PAC had ordered a hearing, the Law Society, through its counsel, failed to make complete disclosure, necessitating motions for production by Mr.

Watson before and during the Merits Hearing, all of which were decided in his favour. [74] There is considerable support for Mr. Watson’s position in the record before the tribunals and before this court. Nature of the Duty [ 84 ] It is well-settled that the Law Society has a duty to deal fairly with complainants, to investigate their complaints thoroughly, and to take action against any member’s wrongdoing for the protection of the public.

However, the Law Society also has an obligation of fairness to any member against whom a complaint is filed, recognizing the seriousness of any negative finding to the career and livelihood of that member. Investigators and counsel for the Law Society do not stand in an adversarial position to the member against whom proceedings are brought, but rather have a duty to act fairly and impartially, more akin to the function of the police and Crown prosecutor in a criminal matter, than to private combatants in civil litigation. As stated by Dickson J. (as he then was) in Ringrose v.

The College of Physicians and Surgeons (Alberta) : The provision contained in The Medical Profession Act , R.S.A. 1970, c. 230 , permitting a degree of overlapping between the council and the discipline committee, does not justify overlapping between the discipline committee and the executive committee.

I think that, to avoid criticism, reliance should be placed upon such an overlapping provision as infrequently as the practicalities of the situation permit, since there rests upon the governing bodies of the professions in the exercise of their statutory disciplinary powers the duty to be scrupulously fair to those of their members whose conduct is under investigation and whose reputations and livelihood may be at stake. That is not to say that a profession should be slow to discipline.

On the contrary, the public interest and the integrity of the profession may require immediate and stern action against a transgressor. But the investigation of the alleged breach, and the steps taken to determine culpability, must be such that justice is manifestly seen to be done, impartially and, indeed, quasi-judicially. [75] [Emphasis added]

[ 85 ] Unfortunately, in this matter the Law Society’s investigator and its in-house counsel at times failed to adhere to this standard. In particular, their approach appeared to be fixated on finding support for Ms. Sweeney’s claims, rather than towards testing their truth and the truth of explanations put forward by Mr. Watson. Conduct and Positions Taken by Counsel [ 86 ] I will deal first with statements made by the Law Society’s in-house counsel both in writing and in oral submissions to the tribunal, which demonstrate that this was the approach taken.

Those statements include the following: • The other principle that is important to note is that the Law Society does not have an obligation to unearth every possible piece of evidence. Our obligation is to hand over the fruits of the investigation, and we have to be reasonably diligent to obtain all of the evidence we seek to rely on in support of the particulars we are alleging.

Otherwise, when we go to Proceedings Authorization Committee, they are not going to be satisfied there is sufficient evidence to authorize a conduct allegation, and that is at our peril if we don’t do that. • But it is not the Law Society’s obligation to conduct every possible inquiry. I would suggest to you that our duty to inquire is to make reasonable efforts to obtain evidence that supports the allegations that we are advancing in the Notice of Application. • I would not agree, and I am not sure Mr.

Moore is asserting this, but perhaps impliedly, that there was some obligation on the Law Society to pursue some of these inquiries which have resulted in his requests for productions from Ms. Sweeny. I strenuously object if that is his assertion because the majority of the inquiries that Mr. Moore is making, or requests for production I would suggest to you, related to Ms. Sweeney’s credibility, which he is entitled to explore, or relate to matters, as he said yesterday, to affirm his defence.

They are documents he is seeking to obtain to further his defence. • They are not documents that the Law Society should have obtained at first instance to support the allegations in the Notice of Application. [ 87 ] This was a position Ms. Worley continued to take at the Merits Hearing. One of Ms. Sweeney’s allegations, which was supported in Mr. DiPietro’s investigation report, was that Mr. Watson was never entitled to any remuneration, and that the $33,000 he retained personally from monies owing to IPAFA (which flowed through his trust account), amounted to theft. Mr.

Watson had provided cash flow projections showing $40,000 payable to him. Ms. Sweeney’s explanation, which the Law Society investigator and counsel accepted, was that they were merely projections and did not reflect any actual agreement to pay Mr. Watson. Prior to the hearing, counsel for Mr. Watson requested the actual financial and accounting records of the company, which was refused by Ms. Worley on the grounds that it was “irrelevant”. The hearing commenced. In her evidence in chief, Ms.

Sweeney again made reference to the cashflow spreadsheets being merely projections and not proof of any agreement to pay Mr. Watson. Elsewhere in her evidence she made reference to the company’s QuickBooks, which would record payables and receivables. Mr. Moore, for Mr. Watson, renewed his request for the financial and accounting records. Again, Ms. Worley objected, stating that those documents were irrelevant and characterizing the request as a fishing expedition. The First Hearing Panel disagreed with that characterization and directed production.

The following comments from Board Chair Ross in the course of argument on that issue are illuminating: THE CHAIR: Let me voice my concern, and I haven’t talked to my fellow panel members. It is this: Your own witness has said, “I don’t want to make a mistake here. This is, basically, my working document, my moving target, my wish list.” It is very clear they are not her actual accounting books and records. They are a tool she uses in management of a project and in the deployment of resources and people, and whether she can afford to pay for those.

They are not books and records, and as I understand it, the issue about money, from whence it came and where it went to, is strongly in issue in this case. I think it is only appropriate that the books and records she appears to be referencing should be made available to Mr. Moore and his client. It strikes me as logical, and I am not, in the middle of a hearing, going to force him to spend money bringing a motion for a simple disclosure request that is confined to her books and records. …. THE CHAIR: It is particularly relevant, Ms. Worley, when you see under this cash flow document that Mr.

Watson was to receive $40,000, and if that is not actually what he received and the books and records show that he actually was paid or not paid, then the books and records are relevant and probably more reliable evidence than the cash flow. To this Panel, and I think I am speaking fairly on behalf of my colleagues here, our job is not to stand in the way of the fair exchange of disclosure. Our job is to make sure we are not off on a fishing expedition into areas that are none of our business related to the witness’s businesses and projects.

On the other hand, our duty is to ensure that fairness is done between the parties: fairness to the Law Society, and fairness to the lawyer who is under charge here. If his counsel - - experienced counsel, I think - - is saying he needs those documents and that next week sometime is going to be satisfactory - - and he will have a better idea after Friday when that is - - then that request, if it is reasonable and relevant, ought to be simply dealt with without a lot more discussion about it. That is the view of the Panel. [ 88 ] Notwithstanding this exchange, Ms.

Worley continued to maintain that the QuickBooks were not relevant to the hearing. In a letter to Mr. Moore dated May 11, 2011, Ms. Worley wrote: I have now reviewed your extensive letter regarding the QuickBooks produced to you for inspection in response to your request set out in your letter of April 28, 2011. I am in the process of discussing your letter later with Joe DiPietro, who has an accounting expertise. As discussed, we disagree about the relevance of these QuickBooks. You maintain that Mr.

Watson has an entitlement to $40,000 by virtue of the cash flow projection and that this provides him with a defence to the allegations of misappropriation if he can establish that he was entitled to some money from IPAFA. In my view, even if a debt to Mr. Watson was borne out by the QuickBooks, it would not constitute a defence to the allegation of misappropriation as it would not provide him with the authorization to handle the trust money in the manner of which he did. At best, it would provide him with some evidence of mitigation to assist him on the issue of penalty.

[89] Even at this juncture, Ms. Worley failed to appreciate how the official books of the company showing a debt to Mr. Watsonfor $40,000 could be relevant to a charge that he misappropriated $33,000. In her view, this was relevant only to penalty. Since thecharge of misappropriation carries with it a requirement that the person intended to take what was not lawfully his, this position ispuzzling to say the least. The Law Society Hearing Panel confirmed in Law Society of Upper Canada v.

Norma Jean Walton[76] that thecorrect definition of “misappropriation” was as set out in an earlier Hearing Panel decision in Law Society of Upper Canada v. Reiten,which states: [47] “Misappropriation” refers to a deliberate (i.e., knowing) taking with a dishonest intention, usually theft, or fraud or some otherserious wrong. Such allegations are among the most serious that can be brought. The usual consequences – disbarment, or permission toresign, subject to unusual circumstances such as a small amount, the absence of loss, medical or psychological evidence – arecommensurate with that specific intent.

They do not form a rule, but rather reflect the experience of the Bench year after year, case aftercase.[77] [90] In the result, Mr. Watson was required to bring a motion to get the production he sought. He was successful in obtaining anorder for production, but then had to retain an expert to review the financial records. This not only resulted in considerable expense, butalso delay of the proceedings. However, the result was fruitful. From these records, the expert retained by the defence ascertained thatthe accounting books and records of IPAFA and EPP had recorded debts to Mr.

Watson exceeding the amount he was alleged to havemisappropriated, and further that the records had subsequently been altered to hide those debts.[78] [91] This approach was apparent not only during the hearing, but prior to its commencement, particularly with respect todisclosure.

It is clear that the disclosure obligations of the Law Society in cases of this nature are governed by the principles establishedby the Supreme Court of Canada in Stinchcombe.[79] The Court held in Stinchcombe that the Crown must disclose all “relevant materialwhether it is inculpatory or exculpatory” and that the duty applies to everything in the Crown’s possession unless it is “clearlyirrelevant.”[80] Where there is a “reasonable possibility” that the materials “might be of use to the defence” they must be disclosed.[81] This has been described as a very low threshold. [92] The Ontario Divisional Court has emphasized the importance of disclosure to procedural fairness in professional disciplineproceedings, as follows: The importance of full disclosure to the fairness of the disciplinary proceedings before the Board cannot be overstated.

Although thestandards of pre-trial disclosure in criminal matters would generally be higher than in administrative matters (See Biscotti et al. v.Ontario Securities Commission, supra), tribunals should disclose all information relevant to the conduct of the case, whether it bedamaging to or supportive of a respondent's position, in a timely manner unless it is privileged as a matter of law. Minimally, this shouldinclude copies of all witness statements and notes of the investigators. The disclosure should be made by counsel to the Board after adiligent review of the course of the investigation.

Where information is withheld on the basis of its irrelevance or a claim of legalprivilege, counsel should facilitate review of these decisions, if necessary. The absence of a request for disclosure, whether it be foradditional disclosure or otherwise, is of no significance. The obligation to make disclosure is a continuing one. The Board has a positiveobligation to ensure the fairness of its own processes. The failure to make proper disclosure impacts significantly on the appearances ofjustice and the fairness of the hearing itself. Seldom will relief not be granted for a failure to make proper disclosure.

For comparableprinciples in the context of criminal prosecutions see M.H.C. v. The Queen (1991), (SCC), 63 C.C.C. (3rd) 385 (S.C.C.);R. v. Stinchcombe (1991) (SCC), 68 C.C.C. (3rd) 1 (S.C.C.); R. v. Egger (1993), (SCC), 82 C.C.C.(3rd) 193 (S.C.C.); R. v. McAnespie (1993), (ON CA), 82 C.C.C. (3rd) 527 (Ont. C.A.); R. v. Hutter (1993), (ON CA), 16 O.R. (3rd) 145 (Ont. C.A.); R. v. L.A.T. (1993), (ON CA), 84 C.C.C. (3rd) 90 (Ont. C.A.);R. v. T (1993), 14 O.R. (3rd) 378 (Ont.

C.A.) and "The Report of the Attorney General's Advisory Committee on Charge Screening,Disclosure and Resolution Discussions" at pp. 143-273 prepared by The Honourable G. Arthur Martin, O.C., O.Ont., Q.C. LL.D.[82] [93] In my view, the position taken by Law Society counsel to disclosure, both during and before the hearing, is at odds with theseprinciples. Although the hearing was sche

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