- Mortgages to Secure Legal Fees
- October 4, 2012
- Law Firm: Perley-Robertson Hill McDougall LLP/s.r.l. - Ottawa Office
We all rely upon the advice of professionals in various fields including law, medicine, accounting, finance, etc. It is not uncommon that professional services are offered on a running account basis. There are occasions where a professional may want to consider accepting a mortgage as security when payments due are being deferred.
However, when a lawyer accepts a mortgage as security for legal fees, they must ensure that their client received independent legal advice about the mortgage transaction. The Law Society of Upper Canada (“LSUC”) advises that lawyers who fail to do so may find themselves facing one or both of the following scenarios:
i) the client may seek to have the mortgage set aside on the basis that their lawyer did not properly explain the mortgage security/fee arrangement to them and they did not understand the implications of such an arrangement;
ii) the client may file a complaint with the LSUC asserting that the lawyer’s interest was in conflict with the client’s interest and that the lawyer acted to the detriment of the client.
The most practical method to avoid an allegation of conflict of interest or undue influence in such circumstances is to ensure that the client receives independent legal advice.
There is little case commentary on mortgages to secure legal fees. From the limited case law on point that the author has reviewed, a lawyer should carefully consider whether to accept a mortgage as security for legal fees where they are aware that:
a) a client is on the verge of bankruptcy; and/or,
b) lawsuits exist over the very property that is to be mortgaged.
Further, if a property is subject to a “No Dealings Indicator,” such as a “Restraint Order and Management Order” issued by a court, a lawyer should appreciate that any dealings with the property will be subject to the restrictions and required approvals detailed in the order.
 Bates, Re, 1997 CanLII 519 (ON LSDC).
 Law Society of Upper Canada, Advisor, "Independent legal advice essential when fees secured by client mortgage", (October 1993, Vol. 1, No. 3).
 Re: Can Corp Financial Services Ltd., 10 C.B.R. (3d) 12 (Ont. Sup. Crt. [Gen. Div]).
 Sagebrush Building Limited v. Harris et al, 2010 ONSC 3676.