Law Times

Law Times • February 10, 2014 Page 5 www.lawtimesnews.com unique Divisional Court case involving the former clients of a convicted fraudster has highlighted the "inadequate" com- pensation available to victims of dishonest lawyers. In 2012, the court sentenced real estate lawyer Mariano Maz- zucco to six years in jail aer he swindled clients and banks out of nearly $10 million. e Law Society of Upper Canada disbarred him in 2011 and at the time of his 2012 court hearing, victims of his fraudulent mortgage scheme had received $1.4 million from the LSUC's compensation fund. However, not all of his victims were happy with the amount of compensation received. A family of former clients who assigned Mazzucco about $930,000 to hold in trust were able to recover just $200,000 as a result of a decision by the law society's compensation fund committee. In what was reportedly a legal first, the El-Hennawy family chal- lenged the decision by applying for a judicial review. But in a decision dated Jan. 28, the Divisional Court dismissed the family's application. e com- mittee's decision was "justified, transparent, and intelligible," wrote Justice Susan Himel. e LSUC's compensation fund for victims of "profession- al dishonesty" provides up to $150,000 per claim. In Tarek El- Hennawy v. e Law Society of Up- per Canada, the family patriarch, Hussein El-Hennawy, told the court he transferred the money to Mazzucco because he had experi- enced delays and difficulty dealing with conventional banks aer the Sept. 11, 2001, terrorist attacks. e terrorist attacks led to strict banking regulations aimed at curbing international transfers of large amounts of cash. Much of the money was as- signed to family members, El- Hennawy said, for specific mort- gage transactions. e LSUC's compensation committee awarded El-Hen- nawy and his business $100,000 respectively, the maximum per claimant for funds advanced be- fore April 24, 2008. But it found most of the re- maining cash was ineligible for compensation as it was "not deposited in anticipation of Mazzucco performing any spe- cific legal services," according to Himel's decision. e committee found the funds to be not "sufficiently con- nected to his practice of law" but were "in connection with his un- orthodox business of acting as a custodian or banker," according to Himel. e committee cited the guidelines issued by Convoca- tion that state a claimant's loss must have come about "in con- nection with such lawyer's pro- fessional business." Himel found that Convoca- tion was entitled to establish these guidelines and that the compensa- tion fund "is not unlimited." e committee's actions weren't incon- sistent with the Law Society Act, she concluded. e case shows how "unrea- sonable" the compensation rules are, says McMillan LLP lawyer and fraud specialist David Deben- ham, who argues the upper limit for claims should be decided on a case-by-case basis. "I'm not opposed to paying a higher premium to make sure the victims are insured," he says. Clients put their trust in law- yers and can't be expected to un- derstand whether their cash has been transferred in connection with someone's practice of law or not, Debenham suggests. However, to avoid confu- sion, lawyers should have to pick between providing legal services and carrying out other roles, he believes. "We sell trust as part of our business. If that trust is displaced by distrust, we all suffer," he says. e compensation fund rules have been the subject of debate in the wake of lawyer Javad Hey- dary's disappearance. Heydary fled Canada last No- vember owing millions to his clients and has since died. Some of his former clients have com- plained about the compensation fund ceiling being far too low. Jim Patterson, a Bennett Jones LLP partner and co-leader of the firm's fraud law practice, agrees the limit is "inadequate." "Many businesses these days are buying fidelity coverage with much higher limits and the de- ductible alone is oen $250,000 or $500,000," he says. e El-Hennawy family also claimed $40,576 for legal costs associated with the LSUC hear- ings but received $14,475. e award reflected the fact that only two of the 12 claimants were successful. e family's counsel, Victor Freidin, says restricting available disbursements in this way could deter victims from fighting for fair compensation. is case was "unique" in its complexity and the committee should have taken a more flexible approach to the rules, he argues. e family has yet to instruct him on whether it wants to appeal the ruling, he adds. According to the LSUC's most recent annual report, the com- pensation fund paid out $1.9 mil- lion in 2012 for 72 claims against lawyers and $32,280 on 26 claims against paralegals. On top of this, it received 120 new claims against lawyers and 27 new claims against paralegals. A law society spokesman confirmed the LSUC was un- aware of any judicial review ap- plications against compensation fund decisions for at least the past two decades. He said in an e-mailed state- ment: "e legal profession cares about the victims of professional misconduct. e law society's compensation fund, which we pioneered in North America in 1953, is a unique fund. "No other profession, apart from the legal profession, com- pensates for losses suffered as a result of professional dishonesty. We take this responsibility very seriously. "Our fund has paid out thou- sands of claims over the years. e per-claim limit is reviewed periodically to determine if it should be adjusted. In 2008, the per claim limit was raised from $100,000 to $150,000." LT Convicted lawyer's clients fail in bid for more compensation Divisional Court ruling raises questions about need to increase limits NEWS Sure, we could tell you that our client was awarded the largest personal injury judgment in Canadian history and that all our principal partners are past-presidents of the Ontario Trial Lawyers Association. We could also mention that our firm was voted top five in its field in Canada and that we have a five out of five preeminent peer review rating from Martindale-Hubbell. All those achievements and honours don't just happen. They're the result of the way we work and the way we care for our clients. Don't take our word for it... ask around. When you know someone with a personal injury case, call the lawyers that lawyers recommend most. Ask about our competitive referral fees. A Noticeable Difference ™ TORONTO I BARRIE I HAMILTON I 1-866-685-3311 I www.mcleishorlando.com TO RO N TO I B A R R I E I H A M I LTO N 1-866 - 685-3311 I w w w. mcleishor lando.com A Noticeable Difference ™ I KITCHENER Proud Member McLeish_LT_Dec9_13.indd 1 13-12-03 8:37 AM BY CHARLOTTE SANTRY Law Times A

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