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What does it mean to be reckless in real estate deals?

|Written By Yamri Taddese

What is the meaning of recklessness when it comes to holding lawyers to account for real estate fraud?

It might seem like splitting hairs, but for real estate lawyer Tariq Shah, what qualifies as a synonym for the word “reckless” could mean losing his licence to practise law. In 2011, a hearing panel found Shah’s recklessness caused him to enter into 15 questionable real estate transactions. The hearing panel suspended him for three years.

But on March 12, a Law Society of Upper Canada appeal panel quashed the decision after finding the hearing panel “seriously misdirected itself” on the definition of recklessness.

“Shah was aware of the conduct found to be dishonest and fraudulent, and was aware that the unusual factors would be material to his lender-clients. The factors should have aroused his suspicions,” the hearing panel wrote.

“We find that in failing to make the indicated inquiries and in failing to inform his lender clients, Shah recklessly ignored the potential and probable prejudicial consequences to his lender clients. His reckless conduct constituted knowing assistance in the dishonest and fraudulent acts of his non-lender clients.”

But the law society regards recklessness as a “less blameworthy state of mind” than actual knowledge or wilful blindness, according to the appeal ruling written by panel chairman Mark Sandler.

Sandler found the hearing panel confused its definitions when it comes to recklessness. In effect, the appeal panel said, “‘knowledge’ includes actual knowledge (that is, subjective awareness) as well as its proxies, ‘recklessness,’ and ‘wilful blindness.’”

Since Shah wasn’t found to have had knowledge of the fraudulent nature of the transactions, he can’t be said to have acted recklessly either, the appeal panel found.

“‘Recklessness’ means that a licensee is aware of the risk that the activities in which he/she is participating or assisting are dishonest, but continues on despite the risk,” wrote Sandler, citing the law society’s guidelines. “The hearing panel misdirected itself as to the meaning of recklessness.”

Although the hearing panel found Shah reckless, it noted its inability to establish that Shah was “willfully blind to the frauds that were taking place.”

The hearing panel added: “There was no evidence that he was subjectively aware of unusual or suspicious facts but failed to make sufficient inquiries. While recklessness was sufficient in this case to establish the first particular in this application, the extent of proof in this case is nevertheless important.”

The admission of lack of proof of knowledge is sufficient to conclude that Shah wasn’t reckless, the appeal panel said.

“The hearing panel never found that Mr. Shah was subjectively aware of the risk that the transactions were dishonest or fraudulent, but continued on despite the risk. Recklessness requires no less,” wrote Sandler.

“A finding that Mr. Shah ought to have recognized the risks or ought to have suspected that the transactions were dishonest or fraudulent falls short of recklessness, willful blindness or, of course, actual knowledge. The hearing panel’s reasons suggest that it was unable to find a more culpable state of mind.”

But the definition of the word “reckless” wasn’t the only problem the appeal panel found with the hearing panel’s decision. Shah wasn’t given full permission to speak at the hearing about his knowledge of the sham involved in the 15 transactions.

The hearing panel didn’t give Shah the chance to speak because it wanted to move the procedures along in a timely manner as many accommodations had already been made, according to the appeal panel, which found the decision unfair to the accused lawyer.

“We are mindful, of course, of the desirability of an expeditious hearing, and the accommodations earlier given to Mr. Shah,” wrote Sandler, adding that several considerations “made it unfair not to permit Mr. Shah to explain why, according to him, he did not know or suspect that the transactions were fraudulent.”

Shah’s knowledge of the scam was central to the only issue before the hearing panel and hearing the lawyer’s explanation is crucial, the appeal panel found.

Reached by Law Times via telephone, Shah says he can’t speak about the case due to the uncertainty he faces.

“I’ll not comment yet because I’m still negotiating with [the law society on] whether they want to prosecute me or not,” says Shah. “I prefer to just wait.”

Although the hearing panel didn’t allow Shah to speak about whether he was aware of the fraud he was found to be involved in, it said in its findings that Shah “offered to the panel no acceptable explanation for his failure to make inquiries and for his ignoring the warning signs of fraud and so-called red flags.”

The law society had also appealed the hearing panel’s decision, arguing that Shah’s licence should have been revoked as is common when a lawyer knowingly assists in fraud.

But the appeal panel didn’t consider this aspect, saying: “In our view, the hearing panel committed reversible error in the two ways alleged by Mr. Shah. It was therefore unnecessary to decide the society’s appeal.”

The appeal panel has ordered a new hearing before a differently constituted panel.

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