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AUDIT REPORT

Law Firm Name:

Date Audit Completed:

AREAS REQUIRING IMPROVEMENT FOR MAINTAINING FINANCIAL RECORDS:

Section A – MAINTAINING FINANCIAL RECORDS

You have not maintained the following financial records required by By-Law 9:

A1. Trust Receipts Journal - By-Law 9 subsection 18(1)

A2. Trust Disbursements Journal - By-Law 9 subsection 18(2)

A3. Client Trust Ledger - By-Law 9 subsection 18(3)

A4. Trust Transfer Journal - By-Law 9 subsection 18(4)

A5. General Receipts Journal - By-Law 9 subsection 18(5)

A6. General Disbursements Journal - By-Law 9 subsection 18(6)

A7. Fees Book or Chronological Billings File - By-Law 9 subsection 18(7)

A8. Trust Bank Reconciliations and Comparisons - By-Law 9 subsection 18(8)

A9. Valuable Property Record - By-Law 9 subsection 18(9)

A10. Source Documents - By-Law 9 subsection 18(10):

a) bank statements (not just on-line printouts), GICs, and pass books for trust accounts

b) cashed cheques for trust accounts, including certified cheques

c) stamped detailed deposit slips / ATM receipts for trust accounts

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d) bank statements (not just on-line printouts) or pass books for general accounts

e) cashed cheques for general accounts

f) stamped, detailed deposit slips / ATM receipts for general accounts

A11. Electronic Trust Transfers - By-Law 9 subsection 18(11) (see C11 for required details)

a) signed electronic trust transfer requisitions (Form 9A) and

b) signed printed confirmations of electronic transfers of trust funds

A12. Teranet Withdrawals - By-Law 9 subsection 18(12) (see C12 for required details)

a) signed authorizations of withdrawals by Teranet (Form 9B) and

b) signed paper copies of confirmations of withdrawals by Teranet

A13. Duplicate Cash receipts book - By-Law 9 Section 19(1) (see C13 for required details)

A15. Referral Fee Journal – By-Law 9 Section 19.1

RECOMMENDATION FOR SECTION A

Ensure that a paper copy of all financial records, whether entered and posted by mechanical or electronic means, can be produced promptly on the Society’s request. By-Law 9 Section 21.

You must keep the financial records required to be maintained under By-Law 9 Sections 18 and 19 for at least a six (6) year period immediately preceding your most recent fiscal year end. By-Law 9 Subsection 23(1).

You must keep the financial records required to be maintained under paragraphs 1, 2, 3, 8, 9, 10, and 11 of By-Law 9 Section 18 (trust records and all trust and general banking records) for at least the ten (10) year period immediately preceding your most recent fiscal year end. By-Law 9 Subsection 23(2).

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Section B – CURRENT FINANCIAL RECORDS

You have not entered and posted the following financial records so as to be current at all times:

B1. Trust Receipts Journal - By-Law 9 subsection 18(1)

B2. Trust Disbursements Journal - By-Law 9 subsection 18(2)

B3. Client Trust Ledger - By-Law 9 subsection 18(3)

B4. Trust Transfer Journal - By-Law 9 subsection 18(4)

B5. General Receipts Journal - By-Law 9 subsection 18(5)

B6. General Disbursements Journal - By-Law 9 subsection 18(6)

B7. Fees Book or Chronological Billings File - By-Law 9 subsection 18(7)

B9. Valuable Property Record - By-Law 9 subsection 18(9)

B15. Referral Fee Journal

RECOMMENDATION - SECTION B

Ensure your financial records required to be maintained under By-Law 9 Sections 18, 19 & 19.1 are entered and posted current at all times: By-Law 9 Subsection 22(1).

B8. Your trust comparison between the total trust obligations to clients (i.e. client trust list) and total trust funds on deposit (i.e. trust bank reconciliation(s)) which you are required to prepare monthly by By-Law 9 subsection 22(2).

By the 25th of each month you must:

i) review your clients’ trust ledger and prepare a client trust list identifying each client and showing the trust ledger account balance for each client at the preceding month end

and compare it to:

ii) the detailed trust bank reconciliation at the same date

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You must ensure that the total trust liabilities to clients (the client trust list), agrees with the total of trust funds on deposit (trust bank reconciliation). Any difference must be explained.

Correct any posting errors and notify your financial institution of any bank errors promptly so the errors do not carry over to the next month.

B16. A firm lawyer responsible for the trust account does not review the monthly trust comparisons.

Please ensure that you or another lawyer in the firm with responsibility for the trust accounts reviews the trust comparison to ensure it is prepared by the 25th of the month, and that it is complete and accurate.

Section C – COMPLETENESS OF FINANCIAL RECORDS

Your books and records did not always show full particulars as required by By-Law 9:

RECOMMENDATIONS – Section C

C1. Trust Receipts Journal - By-Law 9 - Subsection 18(1)

For each trust receipt you must record in the trust bank journal:

a) date you received the money

b) method by which the money is received, for example: cheque, bank draft, cash, wire transfer, etc. (Ensure the method of receipt appears in printed report)

c) name of the person from whom you received the money

d) amount you received

e) purpose for which the money is received

f) name of the client for whom you received the money (note: this is in addition to the name of the person from whom you received the money, even when they are the same person)

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C2. Trust Disbursements Journal - By-Law 9 - Subsection 18(2)

For every trust payment you make, you must record in the trust bank journal:

a) date you made the payment

b) method you used to make the payment, for example: cheque, bank draft, electronic trust transfer, etc.

c) number of the document you used to make the payment, for example: cheque number, bank draft number, electronic trust transfer requisition number, etc.

d) name of the person to whom you made the payment

e) amount of the payment

f) purpose for which the money is disbursed

g) name of the client on whose behalf you made the payment (note: this is in addition to the name of the person to whom you paid the money, even when they are the same person)

C3a. Client Trust Ledger - By-Law 9 Subsection 18(3)

For every receipt to, or payment from, the trust account, you must record in the client trust ledger, in the account for the specific client:

a) amount of money received

b) amount of money paid out

c) amount of money remaining in trust for the client

Although not required, it is useful to include the reason for each receipt and payment in the client’s individual ledger account.

C3b. Clients’ trust ledger accounts must be maintained together in a central location.

Ensure that clients’ trust ledger accounts are maintained together in a central location so that they constitute a ledger as required by By-Law 9 subsection 18(3).

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C4. Trust Transfer Journal - By-Law 9 Subsection 18(4)

For each transfer of money between clients’ trust ledger accounts, you must record:

a) name of the client from whom you transferred funds

b) name of the client to whom you transferred funds

c) explanation of the purpose for transferring funds

C5. General Receipts Journal - By-Law 9 Subsection 18(5)

For each non trust receipt, you must record in the general bank journal:

a) date you received the money

b) method by which the money is received, for example: cheque, bank draft, cash, wire transfer, etc. (Ensure the method of receipt appears in printed report)

c) name of the person or institution from whom you received the money

d) amount you received

C6. General Disbursements Journal - By-Law 9 Subsection 18(6)

For every non trust payment you make, you must record in the general bank journal:

a) date you made the payment

b) method you used to make the payment, for example: cheque, bank draft, wire transfer, etc.

c) number of the document you used to make the payment, for example: cheque number, bank draft number, bank wire transfer number, etc.

d) name of the person or institution to whom you made the payment

e) amount of the payment

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C7. Fees Book or Chronological Billings File –By-Law 9 Subsection 18(7)

You must maintain either or both a Fees Book or Chronological Billings File.

If you keep a fees book, you must record:

a) all fees charged to clients

b) all other billings made to clients, e.g. disbursements, HST, LPIC levies, etc.

c) the dates on which you billed your clients

d) names of the clients you have billed

If you keep a chronological file of copies of your billings, the fee bills must be in date order.

C8. Trust Bank Reconciliations and Comparisons - By-Law Subsection 18(8)

Your monthly trust comparisons are to consist of:

i. A detailed client trust listing made monthly showing the amount of money held in trust for each client and identifying each client for whom money is held in trust

ii. A detailed reconciliation made monthly of each trust bank account

iii. Original bank statements, passbooks, GICs, etc. for all trust funds held

Trust bank reconciliations should properly detail all outstanding or reconciled items:

a) For each outstanding cheque: record the cheque number, amount, payee, and date issued

b) For each outstanding deposit: record the date of receipt and date of bank processing

c) For banking errors or similar reconciling items, record an explanation for the adjustment, the date it happened, and the date it was corrected (which should be before the following month end).

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C9. Valuable Property Record - By-Law 9 Subsection 18(9)

When you receive property other than money, to be held in trust for clients, record:

a) a description of each property

b) the date you took possession of each property

c) the person who had possession of each property immediately before you took possession of the property

d) the value of each property

e) the client for whom you are holding each property in trust

f) the date on which you give away possession of each property

g) the person to whom you give possession of each property

C10 (1). Source Documents incomplete - By-Law 9 Subsection 18(10):

By-Law 9 Subsection 18(10) requires you to keep bank statements (not just internet printouts), including GICs, term deposit certificates, and passbooks as well as cashed cheques, including certified cheques, for all trust and general bank accounts used in your practice.

Legible imaged cheques showing the front and back of cashed cheques are acceptable.

C10 (2). Source Documents incomplete - By-Law 9 Subsection18(10):

Duplicate deposit slips for:

- trust bank account(s)

- estate/POA bank account(s)

- general account(s)

Deposit slips for your practice bank accounts must be detailed showing:

a) the source of money received i.e. the person from whom you received the money, and

b) the name of the client on whose behalf you are depositing the money

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c) are to be stamped by the teller or ATM

If you deposit funds through an automated teller machine, the bank receipt should be attached to the deposit slip for that deposit, or the source and client name should be written on the ATM receipt and included with your financial records.

Ensure you maintain detailed duplicate deposit slips for all trust and general receipts.

C11a. Electronic Trust Transfer Requisitions (Form 9A) do not include all the information required by By-Law 9 Subsection 12(7)

Form 9A, as prescribed by By-Law 9 Subsection 12(7), must include:

i. a requisition number

ii. amount of funds to be transferred

iii. name of client

iv. file reference number

v. reason for payment

vi. name and account number for the trust account from which funds to be paid

vii. name of person or entity of account to whom funds are to be paid

viii. bank name, branch name and address, and account number of accounts to which funds are to be paid

ix. name of person requisitioning electronic trust transfer

x. date and signature of person requisitioning electronic trust transfer

xi. additional transaction details

xii. name and signature of person entering details of transfer in computer

xiii. name and signature of another person authorizing transfer at computer terminal

By-Law 9 Subsection 12(7) requires a licensee to sign the Form 9A before data is entered in the computer.

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C11b. Printed bank confirmations of Electronic Trust Transfers do not include all the information required by By-Law 9 Subsections 12(2)3 and 12(5)

Before electronically transferring money from your trust account, you must ensure that your bank will provide confirmation of the information required by By-Law 9 Subsection 12(2)3:

i. the number of the trust account from which money is drawn,

ii. the name, branch name and address of the financial institution where the account to which money is transferred is kept,

iii. the name of the person or entity in whose name the account to which money is transferred is kept,

iv. the number of the account to which money is transferred,

v. the time and date that the data describing the details of the transfer and authorizing the financial institution to carry out the transfer are received by the financial institution, and

vi. the time and date that the confirmation from the financial institution is sent to the licensee.

In addition, By-Law 9 Subsection 12(5) requires that within two banking days of an electronic trust transfer, you must examine the bank confirmation and:

vii. verify the bank confirmation details with the corresponding Form 9A details

viii. add the name of the client, file subject matter, and any file number

ix. sign and date the confirmation

C12a. Signed authorizations of withdrawals by Teranet (Form 9B) do not include all the information required by By-Law 9 Subsection 15(6)

Before authorizing Teranet to withdraw money from your electronic registration trust account for land transfer tax and registration fees for a client’s real estate transaction, you must complete a Form 9B as prescribed by By-Law 9 Subsection 15(6) including:

i. an authorization number

ii. amount of funds to be withdrawn

iii. name of client

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iv. file reference number

v. reason for withdrawal

vi. name and account number for the trust account from which funds to be paid

vii. name and signature of person authorizing the withdrawal

viii. date of signature of person authorizing the withdrawal

C12b. Printed confirmations of Teranet withdrawals do not include all the information required by By-Law 9 Subsections 15(4) and 15(7)

Before authorizing Teranet to withdraw money from your electronic registration trust account, you must ensure that Teranet will provide a confirmation of the information required by By-Law 9 Subsection 15(4):

i. the amount of money withdrawn from the electronic registration trust account,

ii. the time and date that the authorization to withdraw money is received by Teranet, and

iii. the time and date that the confirmation from Teranet is sent to the licensee.

In addition, By-Law 9 Subsection 15(7) requires that within two banking days of a Teranet withdrawal, you must print a copy of the confirmation of the withdrawal and:

vii. verify the confirmation details agree with the corresponding Form 9B details

viii. add the name of the client and any file number if not already on confirmation

ix. sign and date the confirmation

C13. Duplicate Cash Receipts Book incomplete - By-Law 9 Section 19 (1)

Duplicate Cash Receipts are to be kept together in date order so as to constitute a duplicate cash receipts book.

A book of duplicate receipts, with each receipt identifying:

i. the date on which cash is received

ii. the person from whom cash is received

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iii. the amount of cash received

iv. the client for whom cash is received

v. any file number in respect of which cash is received

vi. the signature of the lawyer or the person authorized by the lawyer to receive cash

vii. the signature of the person from whom cash is received

If the person from whom you receive the cash refuses to sign the receipt you should document your efforts to obtain that person's signature.

C15. Referral Fee Journal - By-Law 9 Section 19.1

1) For each referral fee you receive, you must record in the referral fee journal:

a) date you received the referral fee

b) method by which you received the referral fee

c) amount of the referral fee

d) name of the licensee from whom you received the referral fee

e) the name of the client in connection to whom you received the referral fee

2) For each referral fee you pay, you must record in the referral fee journal:

a) date you paid the referral fee

b) method by which you paid the referral fee, including the number or a similar identifier of any document used to pay the referral fee

c) amount of the referral fee

d) name of the licensee to whom you paid the referral fee

e) the name of the client in connection to whom you paid the referral fee

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3) You must also maintain all documents related to each referral fee transaction, including any agreement the Society may require you to enter into in relation to each referral fee transaction.

Section D – REFERRAL FEES

Referral fees were not in compliance with the Rules of Professional Conduct.

RECOMMENDATIONS – Section D

D15. The Rules of Professional Conduct 3.6-6.0 and 3.6-6.1 require that:

A referral fee paid or received may be no more than 15% of the first $50,000 of legal fees, plus 5% of any excess legal fees above $50,000, to a maximum of $25,000.

A referral fee may be paid only after the client has been billed by the lawyer to whom the client was referred, and the referral fee must be clearly indicated in the fee bill.

Section E – Part One – ACCOUNTING SYSTEM

RECOMMENDATIONS – Accounting System

E3. Your accounting system must be capable of producing, on demand,

a) an accurate paper copy of your trust records for the ten-year period immediately preceding your firm’s most recent fiscal year end

and

b) a paper copy of your general records for the six-year period immediately preceding your firm’s most recent fiscal year end.

Ensure that your accounting system is capable of producing accurate records on demand for the time periods as set out in By-Law 9 Subsections 22(1) and (2) and Subsections 23(1), (2) and (3).

E4. If you maintain handwritten financial records, ensure they are entered in ink as required by By-Law 9 subsection 21(1).

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Section E – Part Two – TITLE INSURANCE

E5. When you received a fee from a title insurer this fee must be disclosed to the client

The Rules of Professional Conduct require that when a fee is paid to the lawyer by someone other than the client it must be disclosed to the client (rule 3.2-9.6):

A lawyer shall disclose to the client that no commission or fee is being furnished by any insurer, agent, or intermediary to the lawyer with respect to any title insurance coverage.

The most practical way to establish disclosure is in writing

Section E – Part Three – CASH RECEIPTS

E9c. If you receive cash in the equivalent amount of $7,500 or more Canadian dollars (individually or in the aggregate) for any one client file you must ensure the transaction is excepted by By-Law 9 Section 6.

By-Law 9 Subsection 4 (1) prohibits the receipt or acceptance of cash from a person, in respect of any one client file, in an aggregate amount of $7,500 or more Canadian dollars unless one of the exceptions in By-law 9 Section 6 applies.

E9d. All cash receipts must be recorded in the duplicate cash receipts book

By-Law 9 Subsection 19(1) requires every licensee who receives cash, to maintain in addition to the financial records required by section 18, and in accordance with sections 21, 22, and 23, a book of duplicate cash receipts (see C13 for required details).

Ensure that all cash transactions are properly recorded in your duplicate cash receipts book in compliance with the By-Law.

Section E – Part Four – CLIENT IDENTIFICATION & VERIFICATION

E10. When you are retained to provide professional services to a client, By-Law 7.1 subsection 23(1) requires that you obtain the following information about the client:

1. The client's full name.

2. The client's business address and business telephone number, if applicable.

3. If the client is an individual, the client's home address and home telephone number.

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4. If the client is an organization, the organization's incorporation or business identification number and the place of issue of its incorporation or business identification number, if applicable.

5. If the client is an individual, the client's occupation or occupations.

6. If the client is an organization, other than a financial institution, public body or company that is not a private company, the general nature of the type of business or businesses or activity or activities engaged in by the client, where applicable.

7. If the client is an organization, the name, position and contact information for those individuals authorized to give instructions with respect to the matter for which the licensee is retained.

8. If the client is acting for or representing a third-party beneficiary or a principal, information about the beneficiary or principal as set out in paragraphs 1 to 7, as applicable.

E11a. By-Law 7.1 Subsection 23(2) requires that when you engage in or give instructions in respect of the receiving, paying or transferring of funds, you shall comply with the client identification requirements set out in subsection 23(1), and make reasonable efforts to obtain the following information about the client:

1. The name and occupation or occupations of each director of the organization, other than an organization that is a securities dealer.

2. The name, address and occupation or occupations of each person who owns twenty-five percent or more of the organization or of the shares of the organization.

E11b. By-Law 7.1 Subsection 23(4) requires that when you engage in or give instructions in respect of the receiving, paying or transferring of funds, you shall take reasonable steps to verify the identity of the client and, where appropriate, the third party beneficiary or principal, using what you reasonably consider to be reliable, independent source documents, data or information. Subsections 23(7) to 23(10) provide further details on acceptable means of verification.

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Section F – TRUST ACCOUNTS

RECOMMENDATIONS – Section F

F1. Ensure all trust bank accounts are reconciled and included in your trust comparison:

a) separate interest-bearing accounts

b) term deposits / GICs

c) estate / POA accounts over which you or your firm has sole signing authority

d) other mixed trust accounts

Please ensure that all trust bank accounts, and monetary investments are reconciled monthly and included in your monthly trust comparison: By-Law 9 Subsection 18(8).

Please ensure that all mixed trust accounts are properly designated as such with your financial institution, and that your financial institution is remitting any interest on the mixed trust account(s) to the Law Foundation of Ontario as required by the Law Society Act.

F2a. Your trust bank account must be designated as a trust account.

Contact your financial institution and ensure all your trust accounts, including term deposits and GICs, are properly designated as trust accounts, as required by By-Law 9 Section 7(1).

The bank account statement should include words such as “Trust”, “Trust Account”, “In Trust For”, “ITF”, or other similar notation to confirm the financial institution acknowledges that your firm is holding the funds in trust.

F2b. Ensure your trust accounts are properly designated as trust accounts held in your name or in the name of the firm in which you are a partner or employee as required by By-Law 9 Subsection 7(1) including “LLP” or “Professional Corporation” where applicable.

By-Law 7 Subsection 5(1) requires a corporation that wishes to practise law in Ontario, provide legal services in Ontario, or both practise law and provide legal services in Ontario, to apply to the Society for a certificate of authorization.

Lawyers may not hold a trust account in the name of a "firm" or entity which is not a true partnership. If you are a sole practitioner who shares facilities and practises law or provides legal services "in association" with other licensees, you may not share a trust account with those licensees without a partnership or employment relationship.

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F3a. Your monthly trust reconciliations must agree to supporting documentation.

You should ensure the accuracy of your trust reconciliation and add the trust reconciliations when you receive them monthly for your review.

Any discrepancies with supporting documentation and any arithmetic errors should be corrected promptly

F3b. Your monthly trust comparison, between your reconciled trust bank balance and client trust list total, must agree; and any difference must be explained and corrected as required by By-Law 9 subsection 18(8).

Your trust records must be balanced in accordance with By-Law 9 subsection 22(2) no later than the 25th of each month, and the client trust list balance must agree with the reconciled trust bank balance.

Every month you should personally review the completed trust comparison to ensure that it is accurate by scrutinizing each amount and recalculating totals. Any discrepancies with supporting documentation and any arithmetic errors should be corrected promptly. Any reconciling items, other than outstanding cheques, are to be fully explained.

F4. Ensure that reconciling items are corrected forthwith and are not carried over to the following month’s trust reconciliation.

Determine the causes of any reappearing reconciling items and have them corrected forthwith.

F5. If your trust bank reconciliation contains outstanding, stale-dated cheques [i.e. issued more than six (6) months ago] as reconciling items, determine why these cheques have not been cashed, stop payment, reverse them, and reinstate the trust obligations in the clients’ trust ledger for the client involved, and re-issue the cheques if appropriate. Please ensure these funds are disbursed in accordance with the client’s instructions.

If you cannot locate the person(s) entitled to these funds, consider applying to pay the money to The Law Society’s Unclaimed Trust Fund. A separate application is required for each client. Information about the Fund and a copy of the Application Form are included in the information folder which the auditor has left with you, and on the Society’s web site under the “For Lawyers” tab, “Manage Your Practice” tab.

F6. You must maintain sufficient balances on deposit in your trust account at all times to meet your obligations with respect to funds held in trust for clients: By-Law 9 Section 14.

F7. Follow a routine of depositing trust money as soon as possible after receipt, preferably daily: By-Law 9 Subsection 7(1).

F9a. All client trust ledger accounts with a balance in trust must be included in your client trust listing.

All of your trust obligations to clients must be shown in your client trust listing, whether represented by funds held on deposit in mixed trust accounts, in separate trust accounts, or in term deposits held in trust: By-Law 9 Subsection 18(8)(i).

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F9b. Client trust balances in your client trust ledger must agree to your client trust listing.

Ensure that your client trust ledger is accurate and agrees with your client trust listing for each month.

F10. You should personally review your client trust listing each month. If overdrawn accounts show on your client trust listing, the Society expects you to review the client ledger accounts to determine the reason the overdrawn(s) occurred, and correct the problem by injecting your own funds into the trust account to correct the shortage, and not to await the client replacing the funds to correct the overdrawn account: By-Law 9 Subsection 9(3) and Section 14.

F11a. You should review the list of inactive trust ledger accounts monthly so that you can close, or give instructions to close them, if possible, either by paying the balances held to or on behalf of the clients, or by sending a fee billing to the client and transferring to the general account if you are entitled to any of those amounts. If a large balance is held on behalf of a client, discuss with the client placing the funds in a separate interest-bearing trust account, and obtain the client’s written instructions before doing so.

If you cannot locate the person(s) entitled to these funds, consider applying to pay the money to the Society’s Unclaimed Trust Fund. A separate application form is required for each client. Information about the Fund and a copy of the Application Form are included in the information folder which the auditor has left with you, and on the Society’s web site under the “For Lawyers” tab, “Manage Your Practice” tab.

F11b. Once a matter is concluded, you should report to the client promptly and provide an accounting of all funds received and disbursed. Any funds owed to the client should be returned promptly. Failure to do so could be fail to serve and/or fail to account. It is recommended that you report and account to your clients within 30 days of the completion of a matter, and on an interim basis as appropriate.

F11c. Review your inactive accounts and ensure that those which represent funds held to register mortgage discharges are dealt with promptly, either by obtaining and registering the mortgage discharge or returning the money to the client if you have confirmed the mortgage discharge has already been registered.

F12a. Funds belonging to your firm or a lawyer in your firm must not be deposited in the clients’ mixed trust account.

Do not mingle your own money with the money of your clients: By-Law 9 Subsection 8(2).

Ensure payments to your firm, including credit and debit card payments, for completed, billed legal services are deposited directly to your general account and not to your trust account: By-Law 9 Subsection 8(2).

F12b. Trust ledger accounts must be in the name of a client and must be held for transactions related to the practice of law.

Ensure all trust funds are included in the client trust ledger in the appropriate client’s name and that all trust funds your firm accepts are for transactions related to the practice of law.

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By-Law 9 Subsection 18(3) requires that you maintain a separate trust ledger account in the client’s name for each client for whom you hold trust funds. Do not use of a miscellaneous clients’ trust ledger account.

A lawyer shall not use their trust account for purposes not related to the provision of legal services: Rules of Professional Conduct (rule 3.2-7.3). (effective April 28, 2011)

“GST Collectible” and “Law Pro transaction levies” are not “trust money” within the meaning of that term contained in By-Law 9 subsection 7(2) made pursuant to the Law Society Act. They are liabilities of your firm. As a consequence, billed GST and Law Pro levies should be removed from your firm’s trust account(s). Only client trust funds are to be deposited to the mixed trust account.

F13b. Do not make trust cheques payable to cash or the bearer: By-Law 9 Subsection 11(a).

By-Law 9 Section 9 specifies when funds can be deducted from a trust account. Please review this section and ensure that you comply with the By-Law.

F14a. You should never sign blank trust cheques. Once a cheque is signed, the other details can be completed, and the cheque negotiated. If a signed blank cheque should be lost or stolen your clients’ funds are at risk. Never sign a trust cheque unless the payee’s name and the amount of the cheque have already been filled in.

F14b. Ensure that withdrawals from trust are always authorized in writing by a licensee. You should make arrangements for another licensee to sign your trust cheques when you are unavailable. By-Law 9 Subsection 11(b).

Trust funds may not be withdrawn or transferred by bank machine as this amounts to a cash transaction and leaves an inadequate audit trail. Bank cards for trust accounts must be encoded for deposit only.

Money withdrawn from a trust account by electronic transfer must be in accordance with By-Law 9 section 12. (See paragraph C11 above for details regarding Form 9A and bank confirmation requirements.)

F15b. When you and/or your firm acts for more than one client in a transaction you must obtain written consents from each party to so act or obtain the consent of each party confirmed in a letter to each before accepting a retainer from more than one client.

Before your firm accepts a retainer from more than one client, including spouses, more than one purchaser, vendor, borrower, lender, etc., in a matter or transaction, your firm must advise the clients concerned that:

a. your firm has been asked to act for both or all of them,

b. no information received in connection with the matter from one client can be treated as confidential so far as any of the others are concerned and,

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c. if a conflict develops which cannot be resolved, your firm cannot continue to act for both or all of them and may have to withdraw completely.

If one of the clients is a person with whom your firm has a continuing relationship and for whom your firm acts regularly, you must advise the other client of the continuing relationship and recommend that the client obtain independent legal advice about the joint retainer. When a lawyer has advised the clients as provided under rules 3.4-5 and 3.4-6 and the parties are content that your firm act, you shall obtain their consent i.e. written consent, or record their consent in a separate letter to each: Rules of Professional Conduct (rules 3.4-5, 3.4-6, and 3.4-7).

F15c. If you act for both transferor and transferee in a real estate transaction involving a transfer of title to real property, then the transaction must fall within one of the exceptions in the Rules of Professional Conduct (rule 3.4-16.9).

Rule 3.4-16.7 Subject to rule 3.4-16.7, an individual lawyer shall not act for or otherwise represent both the transferor and the transferee in a transfer of title to real property.

Rule 3.4-16.8 Rule 3.4-16.8 does not prevent a law firm of two or more lawyers from acting for or otherwise representing a transferor and a transferee in a transfer of title to real property so long as the transferor and transferee are represented by different lawyers in the firm and there is no violation of rule 3.4.

Rule 3.4-16.9 So long as there is no violation of the rules in Section 3.4, an individual lawyer may act for or otherwise represent both the transferor and the transferee in a transfer of title to real property if:

a) the Land Registration Reform Act permits the lawyer to sign the transfer on behalf of the transferor and the transferee,

b) the transferor and transferee are "related persons" as defined in section 251 of the Income Tax Act (Canada), or

c) the lawyer practices law in a remote location where there are no other lawyers that either the transferor or the transferee could without undue inconvenience retain for the transfer. [Effective - March 31, 2008]

F16. Please ensure you disburse money from the trust account only in compliance with By-Law 9.

By-Law 9 Sections 7, 8 and 9 clearly state the instances when funds can be deposited to, or deducted from, a trust account.

F17a. Before you transfer trust funds to your general account for fees you must first deliver a billing to the client. Before depositing fees to your general account, you must first deliver a billing to the client

Institute a procedure to ensure that detailed fee billings are prepared, delivered to the clients, and posted to your financial records before you transfer money from trust to general on account of fees earned: By-Law 9 Subsection 9(1)3.

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Ensure that legal fee billings to clients, together with enclosed documents, include:

i) sufficient detail to allow the client to understand the legal services you provided

ii) a detailed statement of disbursements charged to the client

Section G – TERANET ELECTRONIC REGISTRATION

RECOMMENDATIONS – Section G

G1. If your firm uses a general account for Teranet registrations ensure that transfers from your trust account to your general account to reimburse your firm for registration fees and Land Transfer Tax paid from your general account or to a conveyancer, are made after the registration is complete in compliance with By-Law 9 Subsection 9(1)2.

Registration fees and Land Transfer Tax disbursements are not incurred until Teranet has been authorized to debit your general account, or the conveyancer’s account, after the electronic registration is complete.

G3. If you choose to use a trust account for your electric registration bank account, you must authorize Teranet to debit registration fees and Land Transfer Tax from a special trust account, as required by By-Law 9 Section 16.

This is a separate mixed trust account which can contain trust funds for electronic registration fees and Land Transfer Tax only. Ensure that your electronic registration trust account complies with the By-Law.

G5. The amount of funds deposited to the special trust account for Teranet transaction(s) must not exceed the exact amount required for Land Transfer tax and registration fees for the client’s real estate transaction.

By-Law 9 Subsection 16(3) states that you must not pay into the special trust account, described in By-Law 9 subsection 16(1), more money than is required to pay the document registration fees and the land transfer tax, if any, related to a client’s real estate transaction.

G6. Funds for any one client transaction may be held in the Teranet trust account for no more than 5 banking days.

By-Law 9 Subsection 16(4) states that if you pay money into a trust account described in subsection (1) you shall not keep the money in that account for more than five (business) days, and if the money is not properly withdrawn from that account by Teranet within five days after the day on which it is paid into that account, you shall transfer the money from that account into another trust account that is not a trust account described in By-Law 9 subsection 16(1).

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G8. You must maintain the security of your and/or your staff Personalized Security Packages for electronic registration:

a) you may not permit another person to use your Teranet Personalized Security Package

b) you must ensure that your non-lawyer employees with a Teranet Personalized Security Package do not permit others to use the employee’s personalized security package

Note: “Personalized Security Package” means the diskette, key, RSA token, token number and/or personalized e-reg™ pass phrase to access the system for the electronic registration of title documents.

The Rules of Professional Conduct Rule 6.1-5 and 6.1-6 require that you maintain the security of each Personalized Security Package issued to you and/or your staff.

Electronic Registration of Title Documents

Rule 6.1-5 When a lawyer has a Personalized Security Package, the lawyer shall not permit others, including a non-lawyer employee, to use the lawyer's Personalized Security Package.

Rule 6.1-6 When a non-lawyer employed by a lawyer has a Personalized Security Package, the lawyer shall ensure that the non-lawyer does not permit others to use the Personalized Security Package

G9. You must not delegate the signing of law statements for the electronic registration of a title document to staff or another non-lawyer when the law statements are required to be signed by a lawyer.

Commentary (to Rule 6.1-6) Each person in a law office who accesses the e-reg ™ system must have a Personalized Security Package…[O]nly lawyers entitled to practise law may make certain prescribed statements. Statements professing compliance with law without registration of supporting documents may be made only by lawyers in good standing. Only lawyers entitled to practise law may approve electronic documents containing these statements. It is, therefore, important that lawyers should maintain and ensure the security and the exclusively personal use of the Personalized Security Package. When in a real estate practice it is permissible for a lawyer to delegate responsibilities to a non-lawyer who has a Personalized Security Package, the lawyer should ensure that the non-lawyer maintains and understands the importance of maintaining the security of the Personalized Security Package

In real estate transactions using the system for the electronic registration of title documents ("e-reg" ™), only a lawyer may sign for completeness of any document that requires compliance with law statements: Commentary to rule 6.1-1

By-Law 7.1 Subsection 6(2) states that you shall not permit a non-lawyer to access the system for the electronic registration of title documents using the Personalized Security Package in order to access the system for the electronic registration of title documents.

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Section G – Part Two – REPORTING TO MORTGAGE LENDERS

G10. When you act for a lender on a loan secured by a mortgage on real property, you must report to the lender within 60 days of the registration of the mortgage as required by the Rules of Professional Conduct rule 3.2-9.8.

The Rules of Professional Conduct Rule 3.2-9.8 requires that when you act for a lender and the loan is secured by a mortgage on real property, you must provide a final report on the transaction, together with the duplicate registered mortgage, to the lender within 60 days of the registration of the mortgage, or within such other time period as instructed by the lender.

The final report required by rule 3.2-9.8 must be delivered within the times set out in that rule even if you have paid funds to satisfy one or more prior encumbrances to ensure the priority of the mortgage as instructed and you have obtained an undertaking to register a discharge of the encumbrance or encumbrances but the discharge remains unregistered: rule 3.2-9.9.

Section H – GENERAL ACCOUNT & BORROWING FROM CLIENTS

RECOMMENDATIONS – Section H

H1. (1) Retainers (trust money received on account of services to be performed or for future disbursements) must not be deposited into your general account. Each month you should analyse your accounts and transfer to your trust account any money received and deposited to your general account which is unearned at the date of your review: By-Law 9 Subsection 7(2)(d). H1. (2) You may not borrow money from a client except as permitted by the Rules of Professional Conduct Rule 3.4-27 to 3.4-36. Rule 3.4-28.1 Except for borrowing from a regulated lender or from a related person, a lawyer shall not borrow from a client. H1. (3) If you and/or your spouse borrow money from a non-regulated lender client through a corporation, syndicate, or partnership in which you and/or your spouse has/have a direct or indirect substantial interest you must ensure independent legal representation for the client and obtain the client’s written consent as required by the Rules of Professional Conduct Rule 3.4-29. SECTION 1.1 DEFINITIONS Rule 1.1-1 In these rules, unless the context requires otherwise, "consent" means fully informed and voluntary consent after disclosure

a) in writing, provided that, where more than one person consents, each signs the same or a separate document recording the consent, or

b) orally, provided that each person consenting receives a separate written communication recording their consent as soon as practicable;

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Rule 3.4-29 In any transaction with a client that is permitted under Rules 3.4-28 to 3.4-36, you shall in sequence: a) disclose the nature of any conflicting interest or how and why it might develop later; b) with respect to independent legal advice and independent legal representation;

(iii) in the case of borrowing money from a client who is a regulated lender, you need not recommend independent legal advice or independent legal representation; (iv) in the case of a corporation, syndicate, or partnership borrowing money from your client where either you or your spouse has, or you and your spouse have, a direct or indirect substantial interest in the corporation, syndicate or partnership, you shall require that the client receive independent legal representation;

(c) obtain the client's consent to the transaction (i) after the client receives the disclosure, legal advice or representation required under paragraph (b) and before proceeding with the transaction

H2. Your clients’ general accounts should not contain accounts in credit (negative) balance, which could be the result of:

i) Fees transferred from trust without first delivering a fee bill ii) Money received for estimated disbursements or disbursements not yet incurred iii) Retainers deposited to general account instead of trust account iv) Overpayments on clients’ accounts deposited to the general account v) Fee bill or disbursement not posted current

By-Law 9 Subsection 7 states that client trust funds must be deposited to a trust account and By-Law 9 Section 9 states when you may withdraw trust money.

i) Before you withdraw fees from your trust account for completed legal services for a client, you must first send a fee billing to the client. By-Law 9 Subsection 9(1)3.

ii) When you reimburse your firm from trust for expenses made on behalf of your clients, ensure the payment has actually been made. Amounts withdrawn from trust are to be at your firm’s actual cost, not estimated. By-Law 9 Subsection 9(1)2.

iii) You must deposit to your trust account all money you receive for future legal services and disbursements. By-Law 9 Subsections 7(2)(d) and (e).

iv) Any overpayment of your fees or disbursements must first be deposited to your trust account and the amount owed to your firm then transferred promptly to your general account. By-Law 9 Subsections 7(3)2 and 7(4).

v) Ensure that posting of your fees and disbursements is kept current. vi) Investigate and correct any credit (negative) balances in your general account.

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Section I – LAW PRO TRANSACTION LEVIES

RECOMMENDATIONS – Section I

I1. Your firm should have a system that accurately records transactions subject to the Law Pro transaction levies required by By-Law 6.

In order to comply with the requirements of By-Law 6, please immediately institute a procedure to accurately track transactions subject to the Law Pro transaction levies.

I2. Unless you are exempted by the Lawyer’s Professional Indemnity Company (LawPRO), By-Law 6 requires that each lawyer in your firm file quarterly reports and pay a transaction levy on each real estate and civil litigation transaction (as defined in Endorsements No. 2 and 3, respectively, of the LawPRO Insurance Policy).

The Real Estate and Civil Litigation exemption forms are due April 30 each year.

The quarterly transaction levy filings and payments are due within 30 days of March 31, June 30, September 30, and December 30 each year.

To file the forms and pay the transaction levies due, please see the LawPRO website:

Download an Insurance Form - LAWPRO

Section LAWYER’S ANNUAL REPORT & RECOMMENDATIONS

Lawyer’s Annual Report: Your Lawyer’s Annual Report should agree with your financial records and/or lawyer information.

Ensure that your Lawyer’s Annual Report accurately reflects your financial records and lawyer information.

Please ensure you comply with section 4(1) of By-Law 8:

A licensee shall notify the Society in writing immediately after any change in the following information, previously provided by the licensee to the Society either before or after the coming into force of this section:

1. The licensee’s legal and assumed names.

2. The licensee’s personal contact information.

3. The licensee’s business contact information.

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4. Information with respect to whether the licensee is practising law in Ontario as a barrister and solicitor or providing legal services in Ontario.

5. Information with respect to the location and account number of any account at a chartered bank, provincial savings office, credit union or a league to which the Credit Unions and Caisses Populaires Act, 1994 applies into which the licensee pays or paid money received in trust for a client.

Section J – ESTATES & POWERS OF ATTORNEY FOR PROPERTY

RECOMMENDATIONS – Section J

J1. Books and records for the Estate accounts you control should be maintained in either court passing form or in accordance with By-Law 9 Section 18.

Books and records for the Power of Attorney accounts you control should be maintained in accordance with either the Substitute Decisions Act or By-Law 9 Section 18.

Ensure you prepare proper accounting records from the inception of the estate or when you first exercised the power of attorney to meet the requirements of Rule 74.17 of the Rules of Civil Procedure (for estate accounts), the Substitute Decisions Act (for POA accounts), or By-Law 9 Section 18.

Maintain bank statements and other bank confirmations, deposit slips, and cashed cheques for the estate or power of attorney account(s).

Ensure that estate and power of attorney accounts over which you have signing authority are included in your monthly trust comparisons.

J2a. If the executor/attorney compensation is specified in the Will/POA then ensure the compensation is within the specified amount.

By accepting to be appointed as an executor/excising a POA you are bound by the fees provided by the Will/POA and any excess fees must be repaid to the estate/grantor.

J2b (1). Your estate / POA billings for legal fees should provide details of the services billed.

Ensure that legal fee billings, together with enclosed documents, in estate and POA matters, include:

i) sufficient detail to allow the residuary beneficiaries / grantor to understand the legal services you provided

ii) a detailed statement of disbursements charged to the estate / grantor

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J2b (2). Your estate / POA billings for legal fees should not include executor / attorney duties

Ensure that your legal fees to estates / grantors are for legal services only, not for executor / attorney duties that are included in the executor’s / attorney’s compensation. Otherwise the estate / grantor could be billed twice for the same work. (See Rooney Estate v. Stewart Estate (2007), Carswell Ont 6560)

Legal duties and estate trustee duties must be separated because they have different methods of calculation and different remedies for the beneficiaries.

J2c. Executor’s compensation should be calculated in accordance with the court guidelines.

Power of Attorney Compensation should be calculated in accordance with the Substitute Decisions Act

Executor’s compensation that is not granted by court order should be calculated, for estates of average complexity, in accordance with the court guidelines:

a) 2.5% charged on capital receipts realized

b) 2.5% charged on capital disbursements paid out

c) 2.5% charged on revenue receipts realized

d) 2.5% charged on revenue disbursements paid out

e) when a trust has been set up as directed by the testator, an annual care and management fee of 2/5 of 1%, after the first year, on the average annual value of the trust assets

Note: no compensation is payable on transfers within the estate or on any executor’s compensation paid.

POA compensation not specified in the POA document or granted by court order should be calculated in accordance with the Substitute Decisions Act.

3% of receipts and 3% of disbursements from the date the POA is first exercised

3/5 of 1% on the annual average value of the assets as a care and management fee

Note: no compensation is payable on grantor’s assets existing when POA first exercised

J4. Executor’s compensation should be taken after a passing of accounts or the written approval of the beneficiaries

Compensation for estate trustee duties is claimed by, and paid to, the estate trustee.

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The Knoch decision (1982), 12 E.T.R. 162 (Surr. Ct.) provides that an executor may not take compensation unless,

(i) it is approved by all the beneficiaries representing 100% interest in the residue of the estate; or

(ii) the compensation has been awarded to the executor by the court.

Any claim for compensation by a person who is not the estate trustee, must be made to, and paid by, the estate trustee and not the estate. (See Rooney Estate v. Stewart Estate (2007), Carswell Ont 6560)

Section K – PRIVATE MORTGAGES

RECOMMENDATIONS – Section K

K1. If you hold mortgages in trust you must maintain a mortgage asset ledger.

Every lawyer who holds in trust mortgages or other charges on real property, either directly or indirectly through a related person or corporation, shall maintain a mortgage asset ledger showing separately for each mortgage or charge,

i) all funds received and disbursed on account of the mortgage or charge,

ii) the balance of the principal amount outstanding for each mortgage or charge,

iii) an abbreviated legal description or the municipal address of the real property, and

iv) the particulars of registration of the mortgage or charge.

Please ensure that a detailed mortgage asset ledger is maintained as required by By-Law 9 Subsection 20(1) and that it is entered and posted currently at all times as required by By-Law 9 Subsection 22(1).

K2. If you hold mortgages in trust you must maintain a mortgage liability ledger.

Every lawyer who holds in trust mortgages or other charges on real property, either directly or indirectly through a related person or corporation, shall maintain a mortgage liability ledger showing separately for each person on whose behalf a mortgage or charge is held in trust,

i) all funds received and disbursed on account of each mortgage or charge held in trust for the person,

ii) the balance of the principal amount invested in each mortgage or charge,

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iii) an abbreviated legal description or the municipal address for each mortgaged or charged real property, and

iv) the particulars of registration of each mortgage or charge.

Please ensure that a detailed mortgage liability ledger is maintained as required by By-Law 9 Subsection 20(2) and that it is entered and posted currently at all times as required by By-Law 9 Subsection 22(1).

K3. If you hold mortgages in trust you must maintain a record showing a monthly comparison.

Every lawyer who holds in trust mortgages or other charges on real property, either directly or indirectly through a related person or corporation, shall maintain a record showing a comparison made monthly of the total of the principal balances outstanding on the mortgages or charges held in trust and the total of all principal balances held on behalf of the investors as they appear from the financial records together with the reasons for any differences between the totals, and the following records to support the monthly comparison:

i) a detailed listing made monthly identifying each mortgage or charge and showing for each the balance of the principal amount outstanding.

ii) a detailed listing made monthly identifying each investor and showing the balance of the principal invested in each mortgage or charge.

By-Law 9 Subsection 22(2) requires that each comparison be made monthly within 25 days from the effective date of each comparison. Thus, you can satisfy yourself that the total of mortgage liabilities to clients is matched by the total of principal mortgage balances held in trust, and that the bookkeeping function is operating properly. If differences show on the listings instructions can be given to correct them immediately.

K5. When Form 9D is prepared as required by By-Law 9 Subsections 24(1)(a) and 24(9), Form 9D must be:

a) initialled by the lender if Form 9D is altered

b) fully completed

c) signed by the lender before the advance of funds

d) signed by the lender

e) the exact form as prescribed by the By-Law

f) dated with the day, month and year

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Form 9D contains the written instructions from the lender. It crystallizes the transaction and is available for confirmation purposes in the event of an Errors and Omissions claim.

Form 9D is a prescribed form and may not be changed. Every point on the form must be completed, with “N/A” being noted if the point is not applicable: e.g. Section A paragraphs 8a, 8b, 8c are always applicable and should not be answered “N/A”.

The form must be signed by the lender before the first advance of money to or on behalf of the borrower. Ensure the lender’s signature is dated, preferably by the lender.

The lender of RRSP funds is the plan holder, not the financial institution, which is a bare trustee.

K6. Form 9D must be completed when required by By-Law 9 Subsections 24(1)(a) and 24(9)

When you act for or receive money from a lender, in addition to maintaining the financial records required under By-Law 9 Sections 18 and 20, By-Law 9 Section 24(1) states that you must maintain a file for each charge, containing,

(a) a completed investment authority, signed by each lender before the first advance of money to or on behalf of the borrower; (Form 9D)

except as By-Law 9 Section 24(2) provides:

(a) the lender,

(i) is a bank listed in Schedule I or II to the Bank Act (Canada), a licensed insurer, a registered loan or trust corporation, a subsidiary of any of them, a pension fund, or any other entity that lends money in the ordinary course of its business;

(ii) has entered a loan agreement with the borrower and has signed a written commitment setting out the terms of the prospective charge; and

(iii) has given the licensee a copy of the written commitment before the advance of money to or on behalf of the borrower;

(b) the lender and borrower are not at arm’s length;

(c) the borrower is an employee of the lender or of a corporate entity related to the lender;

(d) the lender has executed the Investor/Lender Disclosure Statement for Brokered Transactions, approved by the Superintendent under subsection 54(1) of the Mortgage Brokerages, Lenders and Administrators Act, 2006, and has given the licensee written instructions, relating to the particular transaction, to accept the executed disclosure

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statement as proof of the loan agreement;

(e) the total amount advanced by the lender does not exceed $6,000; or

(f) the lender is selling real property to the borrower and the charge represents part of the purchase price.

K7. Form 9E must be completed when required by By-Law 9 Subsections 24(1)(b) and 24(10)

By-Law 9 Section 24(1) states that when you act for or receive money from a lender you shall maintain a file for each charge, containing,

(b) a copy of a completed report on the investment;

Except as By-Law 9 Section 24(2) provides:

(a) the lender,

(i) is a bank listed in Schedule I or II to the Bank Act (Canada), a licensed insurer, a registered loan or trust corporation, a subsidiary of any of them, a pension fund, or any other entity that lends money in the ordinary course of its business;

(ii) has entered a loan agreement with the borrower and has signed a written commitment setting out the terms of the prospective charge; and

(iii) has given the licensee a copy of the written commitment before the advance of money to or on behalf of the borrower;

(b) the lender and borrower are not at arm’s length;

(c) the borrower is an employee of the lender or of a corporate entity related to the

lender;

(d) the lender has executed the Investor/Lender Disclosure Statement for Brokered Transactions, approved by the Superintendent under subsection 54(1) of the Mortgage Brokerages, Lenders and Administrators Act, 2006, and has given the licensee written instructions, relating to the particular transaction, to accept the executed disclosure statement as proof of the loan agreement;

(e) the total amount advanced by the lender does not exceed $6,000; or

(f) the lender is selling real property to the borrower and the charge represents part of the purchase.

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By-Law 9 Subsection 24(10) provides that the report on the investment required by By-Law 9 subsection 24(1)(b) shall be in Form 9E.

By-Law 9 Subsection 24(11) states the report required under subsection 24(1)(b) may be contained in a reporting letter addressed to the lender or lenders which answers every question on Form 9E.

K8. When Form 9E is completed when required by By-Law 9 Subsections 24(1)(b) and 24(10), Form 9E must be:

a) provided to the client or replaced by a reporting letter which contains a response to every question in the prescribed form. By-Law 9 Subsection 24(3) requires that forthwith after the first advance of money to or on behalf of the borrower, you shall deliver to each lender, an original of the completed report on the investment (Form 9E).

b) fully completed as required by By-Law 9 Subsection 24(3).

c) replaced with a reporting letter that contains a response to every question if Form 9E is not provided to the client. By-Law 9 Subsection 24(11) provides that Form 9E may be contained in a reporting letter addressed to the lender(s) if the reporting letter answers every question in Form 9E.

d) the exact form as prescribed by the By-Law. Form 9E is a prescribed form and may not be changed.

e) should be dated before the mortgage registration date. Form 9E is to be signed after every question on the form has been answered, including the registration details in section A paragraph 16.

K9. If you hold investments in trust for a client you must prepare, execute and deliver a declaration of trust to the beneficial owners as required by By-Law 9 subsection 24(3)(b).

K11. If you loan money to a client, you must ensure independent legal representation or independent legal advice for the client as required by the Rules of Professional Conduct.

Definition:

Transactions With Clients

3.4-27 - For the purposes of rules 3.4-27 to 3.4-36,

"related person" in relation to a lawyer means

(a) a spouse, child, grandparent, parent, or sibling of the lawyer,

(b) a corporation that is owned or controlled directly or indirectly by the lawyer or that is owned or controlled directly or

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indirectly by the lawyer's spouse, child, grandparent, parent, or sibling, or

(c) an associate or partner of the lawyer;

The Rules of Professional Conduct Rule 3.4-29 requires that before agreeing to lend money to a client, you shall in sequence:

a) disclose the nature of any conflicting interest or how and why it might develop later

b) with respect to independent legal advice and independent legal representation;

i) in the case of a loan to a client who is not a related person, you shall require that the client receive independent legal representation (note: not just ILA)

ii) in the case of a loan to a client who is a related person, you shall require that the client receive independent legal advice

c) obtain the client’s consent to the transaction

i) after the client receives the disclosure, legal advice or representation required under paragraph b) and before proceeding with the transaction

(please see the definitions of “client” and “consent” in section 1.1 of the Rules of Professional Conduct)

K14. If you enter into a transaction with a client, you must ensure independent legal representation or independent legal advice for the client as required by the Rules of Professional Conduct.

The Rules of Professional Conduct Rule 3.4-29:

In any transaction with a client that is permitted under Rules 3.4-28 to 3.4-36, the lawyer shall in sequence:

(a) disclose the nature of any conflicting interest or how and why it might develop later;

(b) with respect to independent legal advice and independent legal representation;

v) in all other cases [other than borrowing from clients as set above in H1(2) and H1(3) and loans to clients as set out above in K11], you shall recommend that the client receive independent legal advice and, where the circumstances reasonably require, recommend or require that the client receive legal representation; and

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(c) obtain the client's consent to the transaction

(i) after the client receives the disclosure, legal advice or representation required under paragraph (b) and beforeproceeding with the transaction, or

(ii) where a recommendation required under paragraph (b) is made and not accepted, before proceeding with thetransaction.

K15. If your firm acts for both borrower and lender, or more than one borrower, or more than one lender in a mortgage transaction as permitted by the Rules of Professional Conduct rule 3.4-14, you must obtain written consents from each party to so act, or obtain the consent of each party confirmed in a letter to each, before accepting a retainer from more than one client.

Before your firm accepts a retainer from more than one client, including spouses, borrower and lender, or more than one borrower or lender, in a matter or transaction, you must advise the clients concerned:

a. that your firm has been asked to act for both or all of them,

b. that no information received in connection with the matter from one can be treated as confidential so far as any of theothers are concerned and

c. that, if a conflict develops which cannot be resolved, your firm cannot continue to act for both of them and may have towithdraw completely.

If one of the clients is a person with whom your firm has a continuing relationship and for whom your firm acts regularly, this fact should be revealed to the other or others with a recommendation that they obtain independent legal advice about the joint retainer. If following such disclosure, all parties are content that your firm acts, you should obtain their written consent, or record their consent in a separate letter to each: The Rules of Professional Conduct rules 3.4-5, 3.4-6, and 3.4-7.

K16. Before your firm acts for both the borrower and the lender in a mortgage transaction you must ensure the transaction falls within one of the exceptions in the Rules of Professional Conduct rule 3.4-14 to the prohibition in rule 3.4-12 to acting for both borrower and lender in a mortgage or loan transaction.

The Rules of Professional Conduct Rule 3.4-12 prohibits a lawyer or two or more lawyers acting in partnership or association from representing both borrower and lender in a mortgage or loan transaction unless the mortgage or loan transaction falls within one of the exceptions in rule 3.4-14:

a) the lender is a lending client (see rule 3.4-13 amended April 22, 2021);

b) the lender is selling real property to the borrower and the mortgage represents part of the purchase price;

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c) The lawyer practises in a remote location (you should consult Practice Management Helpline to interpret “remotelocation”) where there are no other lawyers that either party could conveniently retain for the mortgage or loantransaction;

c.1) the consideration for the mortgage or loan does not exceed $75,000; or

d) the lender and borrower are not at “arm’s length” as defined in section 251 of the Income Tax Act (Canada).

The Rules of Professional Conduct Rule 7.2-9 requires that when you are dealing on behalf of your client with an unrepresented person, you shall take care to see that the unrepresented person:

a) is not proceeding under the impression that their interests will be protected by you

b) understands that you are acting exclusively in the interests of your client and your comments may be partisan.

The most practical way to establish that you have conveyed this information is by written communication to the unrepresented person.

K17. If you act for a lender on a loan secured by a private mortgage on real property, you must report to the lender within 60 days of the registration of the mortgage as required by the Rules of Professional Conduct.

The Rules of Professional Conduct Rule 3.2-9.8 requires that when you act for a lender and the loan is secured by a mortgage on real property, you must provide a final report on the transaction, together with the duplicate registered mortgage, to the lender within 60 days of the registration of the mortgage, or within such other time period as instructed by the lender.

The final report required by rule 3.2-9.8 must be delivered within the times set out in that rule even if you have paid funds to satisfy one or more prior encumbrances to ensure the priority of the mortgage as instructed and you have obtained an undertaking to register a discharge of the encumbrance or encumbrances but the discharge remains unregistered: the Rules of Professional Conduct rule 3.2-9.9.