• 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.[1]  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.[2]

    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.[3]

    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;[4] and/or,

    b) lawsuits exist over the very property that is to be mortgaged.[5]

    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.

    [1] Bates, Re, 1997 CanLII 519 (ON LSDC).

    [2] Law Society of Upper Canada, Advisor, "Independent legal advice essential when fees secured by client mortgage", (October 1993, Vol. 1, No. 3).

    [3] Ibid.

    [4] Re: Can Corp Financial Services Ltd., 10 C.B.R. (3d) 12 (Ont. Sup. Crt. [Gen. Div]).

    [5] Sagebrush Building Limited v. Harris et al, 2010 ONSC 3676.