BC court awards costs against LSBC in rare move, says penalization of Vancouver lawyer was unfair

The Supreme Court of British Columbia has awarded special costs against the Law Society of BC in a rare move, calling the process that led to the regulator imposing penalties on a Vancouver lawyer “significantly unfair.”

“I accept that, as a general rule, costs will not be awarded against a tribunal even if the petitioner succeeds,” wrote BC Supreme Court Justice Michael Tammen. “However, in my view, this is one of the rare cases where there should be costs consequences for the LSBC.”

Tammen also declined to remit the case to the LSBC, stating that “it would be the height of unfairness if I were to now permit the LSBC to recast its case.”

According to the court’s March 19 decision, Priyan Samarakoone had received $103,887.50 in settlement funds in his firm’s trust account in June 2020. His client was a Canadian permanent resident who had relocated to Texas but wanted to preserve her interest in a former family home that was being sold via Supreme Court foreclosure proceedings.

Samarakoone met with the client through video conference to verify her identity and review her identity documents.

In 2022, LSBC conducted a trust audit of Samarakoone. An LSBC forensic accountant then conducted an investigation, where the sole focus was whether the lawyer had failed to comply with two of the LSBC’s client identification and verification rules for the 2020 transaction.

In early 2023, the LSBC notified Samarakoone that he had breached its rules by failing to have an agent verify his client's identity. The regulator then told the lawyer it would levy an administrative penalty of $5,000.

Samarakoone disputed the finding, but the LSBC’s discipline committee chair affirmed the penalty. The lawyer appealed the chair’s decision in court.

Tammen sided with Samarakoone, calling the chair’s decision unreasonable. The justice added that Samarakoone’s transaction did not breach any of the regulator’s rules and that he would not remit the matter to the LSBC because it was “one of those rare cases where there could only be one result.”

Because Samarakoone had received the 2020 funds from another lawyer's trust account, the justice said the transaction was “clearly exempt from the application of [LSBC] rule 3-102,” which outlines the steps lawyers must take to verify a client’s identity when providing legal services related to financial transactions.

This fact “was either known by, or ought to have been known by, all those representing the LSBC at all material times,” the justice wrote, adding he “remain mystified how that basic fact was completely overlooked or ignored throughout the entirety of these proceedings by all representatives of the LSBC.”

He said Samarakoone also did not breach LSBC rule 3-104, which outlines the circumstances in which lawyers can use an agent for client verification.

Tammen noted that throughout the LSBC proceedings, the regulator never allowed Samarakoone to make submissions on whether he should be penalized, making the process that led to his penalty “significantly unfair.”

The justice declined to remit the case back to the LSBC. He noted that counsel for the LSBC continued to try to have Samarakoone’s appeal dismissed even after conceding that the 2020 transaction was exempt from the regulator’s client verification rules. She then tried to defend the LSBC chair’s decision to penalize Samarakoone based on another financial transaction.

Tammen said this conduct prompted him to award $5,000 in costs against the LSBC. “I view this as a case of a regulator simply refusing to acknowledge a mistake,” the justice wrote, adding that if the LSBC had done so during a hearing on the matter, he might have had a different perspective.

“However, by submitting to the end that the petition should be dismissed, even when the court pointed out the exemptions set out in Rule 3-101, the LSBC engaged in conduct which is deserving of at least mild judicial rebuke in the form of a costs award.”

On Monday, Dentons partner Morgan Camley and senior associate Ryan Bernard told Canadian Lawyer in a statement that “while a special costs award, especially against an administrative tribunal, is exceedingly rare, this shows the court’s clear concern with the conduct of the Law Society of British Columbia in this matter.”

They noted that multiple LSBC processes – including an investigation, review, and appeal – failed to identify Samarakoone’s transaction’s “clear exemption” from the regulator’s client verification rules. “The court’s message on this entire matter being based on a ‘fundamentally flawed premise’ is evidence of the heavy-handed approach taken with respect to Mr. Samarakoone,” the lawyers said. “The unusual step of awarding special costs reflects this concern.”

Samarakoone said he is “happy with the decision that concludes an almost three-year saga.” He adds that he didn’t know the impact his case would have when he first filed his appeal with the court, “but based on the number of lawyers that have reached out, I’m grateful that I was able to be a part of that change.”

An LSBC spokesperson said the regulator is considering whether to appeal Tammen’s decision.

“There are aspects of the decision we accept, and which highlighted areas in our processes that can be improved. For instance, the law society had already proactively made changes to our processes to ensure greater clarity in our communications with lawyers about administrative penalties,” the spokesperson said.

“However, there are also aspects of the decision with which we strongly disagree and will factor into our considerations and decision-making as to whether to appeal.”